Washington, D.C., USA: Two Democratic senators have introduced legislation that would ban overdraft fees on debit card transactions and ATM withdrawals.
The Stop Overdraft Profiteering Act of 2018 would ban overdraft fees on debit card transactions and ATM withdrawals, and limit fees placed for checks and recurring payments.
It would also mandate that banks post transactions in a manner that minimizes overdraft and nonsufficient fund fees (often times, banks reorder transactions in such a way as to maximize overdraft fees, which can mean, in some cases, that the consumer faces multiple charges).
The bill, sponsored by Senators Cory Booker, D-N.J., and Sherrod Brown, D-Ohio, would also require banks to post transactions in a manner that minimizes overdraft and insufficient fund fees.
“Overdraft fees are a tax on paychecks already stretched thin. My bill with Sen. Cory Booker keeps hardworking Americans’ money in their pockets and stops big banks from slapping big fees on customers for small overdraft amounts” Brown, the top Democrat on the Senate Banking Committee, said in a press release. “This bill keeps hardworking Americans’ money in their pockets and stops big banks from slapping big fees on customers for small overdraft amounts.”
“For millions of hardworking Americans, every day is a struggle – they find themselves one late check or unexpected expense away from financial free fall,” Booker said. “I see this in my community in Newark on a daily basis. Wages aren’t going up but the cost of everything else is, from prescription drugs to housing costs to pocketbook pain points like the fees banks charge consumers for overdraft services. These fees generate enormous amounts of revenue for the banks while most customers don’t even know they’ve opted into such charges. Worse yet, overdraft fees fall on those least likely to be able to afford them – individuals for whom a $35 overdraft charge could push them over the brink into financial ruin. Our bill would end these unfair practices many banks use that leave some consumers – especially those that are the most vulnerable – trapped in a vicious cycle of poverty.”
Specifically the Stop Overdraft Profiteering Act of 2018 would:
- Prohibit overdraft fees on debit card transactions and ATM withdrawals.
- Prohibit financial institutions from charging more than one overdraft fee per month and no more than six overdraft fees in any single calendar year for check and recurring bill payment overdrafts.
- Limit check and recurring bill payment overdrafts fees to an amount that is reasonable and proportional to the financial institution’s costs in providing the overdraft coverage.
- Mandate a three-day waiting period between when an individual opens a new account and when a financial institution may offer overdraft protection.
- Mandate that depository institutions post transactions in a manner that minimizes overdraft and nonsufficient fund fees.
Increase other consumer disclosures related to overdraft coverage programs.
But some banking groups say consumers are sufficiently aware of the overdraft fee process.
“Overdraft protection is optional and requires the consumer to proactively opt-in,” said Richard Hunt, chief executive officer of the Consumer Bankers Association, in a statement. “According to research, customers using the service reported a clear understanding of the process.”
Banks offer overdraft services to allow account holders to make purchases or pay a bill even if they don’t have sufficient funds in their account, while charging a fee for the service – on average $35.
In 2010, the Federal Reserve implemented overdraft regulations that, among other things, required that consumers affirmatively opt-in to overdraft services. However, survey data and anecdotal evidence suggest that the opt-in requirement is being sidestepped by financial institutions marketing overdraft coverage in a confusing and deceptive manner. A 2014 Charitable Trusts study found that across all banks, 52% of people who overdrew their checking accounts and paid a fee in the past year could not recall consenting to the service.
These fees disproportionately fall on customers who are least able to afford them, especially workers living paycheck to paycheck.
Overdraft fees have emerged as a major source of revenue for banks. Last year alone, three of the largest banks in the country collected over $5 billion in overdraft fees.
The legislation follows a letter Senator Booker sent last year to the CEOs of 13 banks – the top ten U.S. banks in overdraft revenue, as well as the U.S. banks with over $2 billion in assets that take in the most overdraft revenue per account – requesting more information on their current practices as they relate to overdraft fees.
Based on the responses to that request, as well as relevant data from banks’ publicly available disclosures and quarterly financial filings, Booker’s office recently released a comprehensive report which it said outlines how banks use overdraft fees in ways that often don’t serve the best interests of consumers.
Last month, Booker sent a letter, signed by 14 other Senators, to the Consumer Financial Protection Bureau, CFPB, questioning its plan to no longer pursue regulatory action on overdraft fees, after it failed to mention action in its most recent regulatory agenda filing, even though it had been on the Bureau’s agenda for four years.
Tips for anyone with a checking account
Know what you’re signed up for: Although overdraft programs are optional, many people don’t know they’re signed up for the services until after they’ve overdrawn their accounts. Some 52 percent who said they paid overdraft fees in 2013 were either not aware that their bank charged overdraft fees or only learned of the charge after the fact, according to a 2014 report from Pew Charitable Trusts. If you’re not sure whether you’re enrolled in an overdraft program, call your bank to find out.
Track your balance: Sign up for alerts so that you can receive a text message or email any time your account balance falls below a certain amount. Check your balance before a purchase, and note any other checks or bill payments that may be pending.
Link to a savings account: Consider linking your checking account to a savings account so that you can have money deducted from the savings account when you’re short in your checking account. There will still be a charge for this, but the fee is usually less than what you might pay for a traditional overdraft charge.