Protecting Consumers from Unfair Overdraft Fees Goal of Maloney Bill
WASHINGTON, DC – With the growth in the use of debit cards for everyday purchases, it’s become much easier to overdraw a checking account. When that happens, it often incurs an overdraft fee—because most banks offer or require “overdraft protection”—and you don’t know it until you get your bank statement or happen to check your balance. What’s more, multiple overdraft fees can be incurred based on what sequence the transactions are posted to a consumer’s account.
Rep. Carolyn Maloney (D-NY), senior member of the House Financial Services Committee, along with Reps.Gary Ackerman, Brad Miller, Keith Ellison, Jackie Speier, John Tierney and Anna Eshoo as cosponsors, today introduced the “Consumer Overdraft Protection Fair Practices Act” (H.R. 1456) which would require notice to customers at the ATM or point-of-sale terminal when a purchase is about to trigger an overdraft—and would give consumers at the transaction point a choice of whether to accept or reject the overdraft service and the associated fee.
“With a median overdraft fee of $27, according to the FDIC , buying a $3 cup of coffee could trigger a fee-- and make it a $30 cup of coffee,” Rep. Maloney said. “That’s just crazy, and consumers ought to be notified if it’s about to happen. And with today’s technology, they can be-- but financial institutions aren’t making technology work well enough for consumers.
“My bill will do that, and requires disclosure of the terms and charges associated with an overdraft program and an opportunity for account holders to opt in, rather than being automatically enrolled. Modeled on my successful legislation requiring disclosure of ATM fees, this allows to consumers to choose or not choose an overdraft protection service when they open their accounts, and also notifies them at the transaction point when an individual purchase is about to trigger the service—and the fee,” Maloney said.
“I believe there is substantial support for helping consumers in this economic environment, and I expect we will be able to move the bill quickly in this session,” Maloney said.
The House Financial Services Committee has scheduled a hearing on the bill for March 19.
The nonpartisan Center for Responsible Lending (CRL) reports that well over $10 billion in overdraft fees are generated each year, with almost half generated from debit card purchases—where the customer typically has no warning that the transaction will trigger an overdraft fee. The CRL study also showed that the overwhelming majority of customers want to know if a debit or ATM transaction would trigger an overdraft fee.
The Maloney bill would:
--Requires consumer consent before banks can permit overdraft loans for a fee, and defines overdraft fees as finance charges subject to the Truth in Lending Act.
--Prohibits banks from manipulating the sequence in which checks and other debits are posted if it causes more overdrafts and maximizes fees.
--Requires banks to warn the customer that an electronic transaction may trigger an overdraft loan fee and allow the customer to cancel the transaction after receiving this warning.
The growth in debit cards has been substantial; debit card transaction volume-- the sheer number of transactions-- surpassed credit cards in 2006.
The Federal Deposit Insurance Corporation reported in November, 2008 that almost all banks (86%) have either an automated overdraft service or a simpler ‘line of credit’ (LOC) program. 75% of banks automatically enroll consumers their overdraft program, whether an automated service or a LOC plan. Large banks prefer automated plans (76%)—and 81% allow overdrafts to occur at ATMs and point-of-sale (POS) terminals. Fees assessed by automated overdraft services ranged from $10 to $38, with a median average fee of $27. Almost 25% of the surveyed banks also assessed additional fees on accounts that remained in negative balance status.
The “Consumer Overdraft Protection Fair Practices Act” was introduced as HR 946 in the 110th Congress.
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