A bill aimed at protecting consumers from “abusive” checking-account overdraft fees was proposed Monday by Senate banking committee Chairman Christopher J. Dodd, who accused banks of bolstering their profits on the backs of struggling Americans.
The measure would require banks and other financial institutions to obtain a customer’s permission before enrolling them in an overdraft protection program for ATM and debit card transactions. It also would require that customers be notified when they overdraw their account.
Banks often automatically enroll customers in overdraft protection programs when they open a checking account or receive a debit card. Banks typically charge fees of $35 or more on overdrawn accounts — typically without warning their customers.
“At a time when many can afford it least, American consumers are being hit with hundreds of dollars in penalties for overdrawing on their account by just a few dollars,” said Mr. Dodd, a Connecticut Democrat. “This legislation gives Americans control over their bank accounts.”
The bill would limit the number of overdraft coverage fees banks can charge to one per month and six per year. Fees also would be required to be proportional to the cost of processing the overdraft.
The measure also would prohibit financial institutions from manipulating the order in which they post transactions in order to rack up extra fees. Some banks maximize penalties by processing larger purchases first, creating the potential for multiple fees on multiple smaller purchases.
“Overdraft protection is billed as a customer service, but it is actually anything but,” said Sen. Charles E. Schumer, New York Democrat and a co-sponsor of the bill. “The bottom line is, debit cardholders are getting scammed by their banks.”
The banking industry has accused Congress of exaggerating the situation.
American Bankers Association Chief Operating Officer Diane Casey-Landry, in an interview this month on NPR’s Diane Rehm radio show, said surveys show that more than 80 percent of bank customers didn’t have an overdraft last year. A “vast majority of [customers] were very happy when their bank, in fact, covered” an overdraft, she said.
Several major banks, in anticipation of congressional action, have said they will start letting people opt out of overdraft programs. Some also have said they will lower their fees.
Bank of America, beginning Monday, stopped charging overdraft fees when a customer’s account is overdrawn by less than $10 for one day. The bank also said it won’t charge overdraft fees on more than four items per day.
Banks stand to collect a record $38.5 billion in fees for customer overdrafts this year, according to Moeb’s Services, an Illinois economic research firm. The most cash-strapped customers are the hardest hit, with 90 percent of overdraft fees coming from 10 percent of checking account holders.
The Center for Responsible Lending, a consumer advocacy group, reports that banks collect nearly $1 billion per year in overdraft fees from young adults and $4.5 billion from senior citizens.
Other original co-sponsors of the bill are Democratic Sens. Jack Reed of Rhode Island, Sherrod Brown of Ohio and Jeff Merkley of Oregon.
Rep. Carolyn B. Maloney, New York Democrat, has introduced similar legislation in the House.
• Sean Lengell can be reached at slengell@washingtontimes.com.
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