U.S. Rep. Carolyn Maloney Intros Bill to Curb Predatory Overdraft Fees

Jul 9, 2021
In The News

U.S. Congresswoman Carolyn B. Maloney (D-12) leads a press conference to discuss her Overdraft Protection Act of 2021.

U.S. Congresswoman Carolyn B. Maloney (D-12) leads a press conference to discuss her Overdraft Protection Act of 2021.

New York, NY—Standing near the corner of East 55th Street and Madison Avenue, in front of a branch of Wells Fargo, one of the most profitable financial institutions in the country, Congresswoman Carolyn B. Maloney (D-NY) led a press conference with consumer protection advocates to say that she has re-introduced legislation in Congress to curb predatory overdraft fees.

The Congresswoman officially announced the bill’s re-introduction last week—The Overdraft Protection Act of 2021, or H.R. 4277. Maloney, a senior member of the House Financial Services Committee, first introduced the legislation more than ten years ago—in 2009. The bill currently has the co-endorsement of 31 House members, all Democrats.

According to Maloney, the legislation will crack down on unfair overdraft fees and establish fair and transparent practices for overdraft coverage programs. The legislation builds on the protections gained through Maloney’s Credit CARD (Credit Card Accountability, Responsibility and Disclosure) Act, which the Consumer Financial Protection Bureau (CFPB), a U.S. government agency, says has saved consumers billions per year from outrageous fees and from rising interest rates without any warning.

“We are here today in front of Wells Fargo, one of the many big banks that continue to charge overdraft fees, unfairly in my belief, to consumers and oftentimes they’re some of the neediest consumers we have in our country. The bill, I introduced it last week, will cut down on the unfair, deceptive overdraft fees that catch many people in a never-ending cycle of debt,” said Maloney.  

“In fact, the Center for Responsible Lending says that during COVID-19 over $11B was unfairly charged to consumers because of overdraft fees—this legislation builds on reforms that I passed in the CARD Act that stopped overdraft fees on credit cards. It’ll also crack down on unfair, deceptive practices—and the CFPB estimates that this bill alone would save consumers over $16B per year. Overdraft fees are predatory and hit those who can least afford it the most—very hardworking low-income New Yorkers, Americans and also college students.”

The Congresswoman also noted that the legislation will address one particular practice by the banks that artificially increases their overdraft fees: the reordering of transactions.

Indeed, the CFPB conducted a study back in 2013 that confirmed what many banking customers have already experienced: banks reorder debit card transactions in various ways that can lead to costly overdraft fees.

“We’ve already asked banks to stop doing this. It’s unfair, and some of them have, but many do not, like Wells Fargo, so Congress needs to act. The Overdraft Protection Act of 2021 will keep money in your pocket, in the consumers’ pocket. We will do so by requiring that the fees be reasonable and proportional to the charge by preventing them from reordering the transactions to drive up the number of fees they can collect,” said Maloney.

One of the consumer protection advocates joining Maloney at the press conference was Chuck Bell, Programs Director at Consumer Reports, a national non-profit organization that works for “truth, transparency and fairness in the marketplace.”

Bell noted that Consumer Reports believes that overdraft fees are particularly insidious because they really affect people who are cash-strapped and financially struggling—seven out of 10 people who overdraft have incomes of less than $50,000.  

“So, this is a fee that disproportionately hits consumers who are young people, seniors and consumers of color. And we know also that Black Americans are about 1.9 times as likely to overdraft as White Americans, and Latino 1.4 times as likely to overdraft,” said Bell.

“We are very strong supporters of Representative Maloney’s bill; we’re joined by many organizations at the national level such as the Consumer Federation of America, Americans for Financial Reform and the Center for Responsible Lending. We want to see the number of fees reduced; we want to see this abusive practice of paying the most expensive check first eliminated as Rep. Maloney has described. At Consumer Reports, we’ve heard from members across the country who are extremely frustrated by that practice.”

In an interview after the press conference, Bell noted that the average overdraft fee is about $34, and yet the average amount people overdraft for is around $24.

“So, you can overdraft for a very small amount—like $10—and be charged a fee of $34. If you work that out that’s an annual interest rate of 17,000 percent APR! It’s really a form of high-cost credit and banks are not necessarily that transparent when consumers sign up for these programs, how much it may cost if you experience overdraft, so Representative Maloney’s act would give much better transparency to consumers about what the rules of the program are when they sign up,” Bell said.

He also noted that Maloney’s bill will limit the number of fees that can banks can charge—1 per month and 6 per year, and the bill also requires that fees be “reasonable and proportional” to the cost of processing transactions and the amount of the overdraft.

“The amount of money that they are charging for that service—$34—is really a lot of money; the people who are getting charged the most are customers with incomes under $50,000—so, 7 out of 10 people in this country who are frequent over drafters are young people, seniors and consumers of color typically making less than $50,000. So, they might be bouncing checks for relatively small amounts of money and yet ending up paying $300 to $500 per year in overdraft fees,” said Bell.

He added that he and his staff hear regularly from consumers that when those fees hit their account, it disrupts other payments that they are trying to make.

“We think the banks really have a responsibility to help out their financially struggling, cash-strapped customers with a more reasonably priced service in this area, and some banks have begun to do that; they allow you to pay overdrafts out of a linked account. But other ones, like Wells Fargo—they’ll have you link to a very high-cost credit card with an interest rate of 20 percent for example, so consumers are really getting fleeced by these fees, and it doesn’t have to be this way; we can have good protections and have the service much more affordably priced,” added Bell.

We asked Bell for his response to the banks’ argument that they need to charge the $34 to cover the cost of processing the transaction.

“I would just argue, the fee of $34 is greatly in excess of what it costs the bank to handle an overdraft—it costs them probably a dollar or pennies on the dollar to actually process the calculations, and they are charging consumers $34 each time it happens, sometimes hitting a customer with multiple fees in one day, so it really is beyond what it should be,” Bell said.

Also, Jamie Weisberg, Senior Campaign Analyst at the Association for Neighborhood & Housing Development (ANHD), noted that high and hidden fees like overdraft fees is one of the main reasons that people are unbanked. She said that just five banks together accounted for half of overdraft fees last year, including three that operate in New York City—Wells Fargo, JPMorgan Chase and Bank of America— each took in over $1.1 billion in overdraft fees nationwide in 2020. The fourth bank, also with New York City operations—TD Bank—took in less—$419 million—but continues to charge overdraft fees.

“Banks have an opportunity and an obligation under the Community Reinvestment Act [CRA] to support an equitable recovery, and that includes making banking affordable and accessible so that individual and small businesses can survive and thrive. Yet too many banks are doing the opposite. U.S. banks took in $8.8 billion in overdraft fees nationwide in 2020 and another $5.3 billion in ATM and maintenance fees during a global pandemic,” said Weisberg.

She added, “Banks have an obligation under the CRA to invest in our communities and support an equitable recovery. Closing branches and charging high overdraft and other fees goes against the letter and the spirit of the law. So, we applaud Representative Maloney for introducing the legislation to limit the overdraft. ANHD looks forward to working with her and her colleagues on this and additional ways to increase access to banks and banking in BIPOC [Black and Indigenous People of Color] neighborhoods throughout New York City.”

And Nicole Davis, Acting Deputy Commissioner for the Office of Financial Empowerment at the Department of Consumer and Worker Protection, a city agency, noted how there is an estimated 301,000 unbanked households in New York City, which means that 9.4 percent of New York City households do not have a bank account—considerably higher than the national average of 5.4 percent.

These New Yorkers, she said, are highly concentrated in neighborhoods with higher rates of poverty, higher unemployment, lower incomes and are predominantly Black and Latino. They also live in neighborhoods with fewer brick and mortar banks and have the highest share of households without internet access.

“We’ve long seen the impact that not having a bank account has on the financial stability of New Yorkers. Unbanked families typically endure higher cost services like check cashiers, non-bank money orders, pre-paid cards and pawn shops. The average worker without a bank account can spend more than $40,000 over the course of their lifetime to cash their paychecks. Every year New Yorkers across the city spend $225 million in check cashing fees. The pandemic has drawn even more attention to this problem with unbanked households paying high fees to cash their stimulus checks and soon to cash their advanced child tax credits, which they will receive every month,” said Davis.

She added, “Like access to online and in-person banking, overdraft fees are a big factor in New Yorker in not being able to afford or not wanting the unpredictability of a bank account, which is why we are thrilled to see Representative Maloney stepping up to remove one of these barriers to a more stable financial future for our most vulnerable New Yorkers.”

She concluded by encouraging anyone who has questions about a bank account or would like to open a safe and affordable bank account to make an appointment at one of the agency’s financial empowerment centers where a trained confidential financial counselor can help you find the right option.