House Dems Renew Push To Rein In Overdraft Fees
A senior House Democrat is reviving her campaign to crack down on overdraft fees with legislation introduced on Wednesday that would impose limits on the size and frequency of such charges at financial institutions.
Flanked by consumer advocates, Rep. Carolyn Maloney, D-N.Y., unveiled the latest version of her Overdraft Protection Act at a Washington, D.C., press conference, saying the banking industry hasn't done a good enough job of reining in "manipulative and predatory" practices like reordering transactions to maximize overdraft fees.
"We already asked financial institutions to stop this on their own," Maloney said. "Some have thankfully done it, but not all, so Congress needs to act."
Maloney's bill, which has more than two dozen Democratic co-sponsors, would require that transactions be posted to customer accounts "in such a manner that minimizes overdraft fees" and cap the allowable number of overdraft charges on a customer account at one per month and no more than six per year.
The bill would not specifically cap how much these fees could be, but it would require that fees be "reasonable and proportional" to the amount of the overdraft and cost of providing the service. The Consumer Financial Protection Bureau would additionally be empowered to issue "safe harbor" regulations establishing fee amounts presumed to comply with this reasonableness standard.
Among other things, the bill would also require enhanced disclosures around overdraft coverage programs and it would ban a cousin of overdraft fees known as nonsufficient funds, or NSF, fees on ATM and debit card transactions.
Many of the bill's provisions have featured in previous iterations of the legislation, which Maloney has introduced in each of the past several Congresses.
But in a notable change, the version introduced Wednesday would apply not just to traditional depository institutions — like banks and credit unions — but also to nondepository institutions offering consumer accounts, a broader scope intended to capture fintech firms and other novel retail banking providers.
"This bill will protect consumers from unfair, deceptive and costly overdraft fees, which cost consumers billions of dollars every year," Maloney said. "This is predatory and abusive, and it is time for it to end."
Federal law already prohibits financial institutions from charging overdraft fees unless a customer has affirmatively signed up for overdraft coverage. Banks have argued that overdraft programs can provide a valuable service to the customers that enroll.
"Many consumers want the option to overdraft to avoid a late fee, a negative credit report hit or missing an important bill," Sean Oblack, spokesperson for the Bank Policy Institute, said in a statement to Law360. "Many banks offer no-overdraft, low-cost accounts for those who don't want the option."
But Democratic lawmakers have for years pushed for tough regulation of overdraft programs to shield cash-strapped consumers from what they see as the risk of excessive fees.
Concerns about overdraft fees and their impact on consumers have particularly surfaced during the pandemic, when federal regulators encouraged banks to waive such fees to help customers who might be struggling financially.
Although many banks did waive fees upon customer request or even stopped charging them, Democrats have faulted some of the biggest banks for continuing to collect billions in overdraft fees this past year instead of automatically waiving them.
There have even been calls from some Democrats to enact an industry-wide ban on overdraft and NSF fees for the duration of the pandemic as well as other future major disasters, though Maloney's bill does not go so far as to include such a blanket restriction.
Still, Maloney expressed optimism to reporters on Wednesday that her bill could finally get passed after years of trying.
"The big difference that we have now that we didn't have before is that we have a Democratic House, a Democratic Senate and a Democratic president," Maloney said. "We have the three pieces that we need to enact it into law."
The bill also has backing from major consumer advocacy groups like the Center for Responsible Lending, National Consumer Law Center and U.S. PIRG, whose representatives appeared with Maloney at her press conference.
NCLC attorney Alpha Taylor framed Maloney's legislation as an important step toward relieving what he described as the disproportionate burdens that overdraft fees can place on lower-income consumers and consumers of color.
"Overdraft fees are not just a charge on a bank account, they actually make people poorer," Taylor told reporters. "This bill goes a long way in balancing equities and ensuring fairness and transparency for low-income consumers."