DODD CALLS FOR FURTHER ACTION TO PROTECT CONSUMERS FROM BANKS’ OUTRAGEOUS OVERDRAFT FEES
November 17, 2009
WASHINGTON – Today Senate Banking Committee Chairman Chris Dodd (D-CT) called for further action to protect consumers from outrageous fees charged to bank customers enrolled in overdraft coverage programs at a hearing on the issue. The committee questioned witnesses from Citibank, the Pentagon Federal Credit Union, the Center for Responsible Lending, and the Consumer Federation of America. Mario Livieri, a Connecticut consumer, told his story of his being hit with $140 in fees before he knew he had overdrawn his account.
“Let’s be clear. It is a responsibility each one of us has to manage our personal accounts as well as we possibly can and to spend within our means,” said Dodd. “But lending institutions often add overdraft coverage to consumer accounts without informing consumers or giving them a choice.”
“Families in my state of Connecticut and across the country are already struggling to make ends meet, and these unfair and excessive charges are making it even harder on them…That’s why I introduced The Fairness and Accountability in Receiving Overdraft Coverage Act.”
Last week, the Federal Reserve announced that they will require banks to get a customer’s consent before enrolling them in an overdraft coverage program. Dodd had written the Federal Reserve
in June calling on them to issue this “opt-in” requirement as soon as possible. Absent Fed action, Dodd had included the requirement in the more comprehensive FAIR Overdraft Coverage Act he introduced last month
. Senators Schumer (D-NY), Reed (D-RI), Brown (D-OH), Merkley (D-OR), Menendez (D-NJ), Levin (D-MI), Reid (D-NV) and Franken (D-MN) have cosponsored this bill.
The Fairness and Accountability in Receiving (FAIR) Overdraft Coverage Act further protects consumers by:
· Limiting the number of overdraft coverage fees banks can charge per month and year;
· Requiring fees be proportional to the cost of processing the overdraft;
· Stopping institutions from manipulating the order in which they post transactions in order to rack up extra fees;
· Requiring customers be notified when they overdraw their account and be given the option of being notified by email, text or traditional mail; and
· Requiring customers be warned if an ATM or branch teller transaction will overdraw their account, and be given the chance to cancel the transaction.
The Committee heard from John Carey, Chief Administrative Officer of Citibank NA, Michael Calhoun, President of the Center for Responsible Lending, Jean Ann Fox, Director of Financial Service for the Consumer Federation of America, Frank Pollack, President and CEO of the Pentagon Federal Credit Union, and Connecticut consumer Mario Livieri.
A summary of the FAIR Overdraft Coverage Act is available here
Testimony and archived videos will be posted at: http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=4b0d5619-946c-4429-aabd-0a4cee2c513c
Below is the Chairman’s statement as prepared for delivery.
“Our job on the Banking Committee is to make sure that regular folks get a fair deal from financial institutions. For too long, credit card companies have made excessive profits by charging consumers outrageous fees, or raising rates whenever they felt like it. Our committee approved legislation to stop those abusive practices, legislation that passed the Senate earlier this year with overwhelming bipartisan support and was signed into law by President Obama.”
“Today, we meet to discuss another practice that I find in too many instances to be abusive –misleading overdraft programs that encourage consumers to overdraw their accounts and then slam them with high fees.”
“Now, let’s be clear. It is a reasonability each one of us have, to manage our personal accounts as well as we possibly can, and to spend within our means. And banks have a right to charge a fair fee for legitimate services that they provide.”
“But lending institutions often add overdraft coverage to consumer accounts without informing them or giving those consumers a choice. The overdraft charge is usually a high fee - a consumer can pay a $35 fee for overdrawing on a $2 transaction. And we are going to hear specifically about just such a case this afternoon.”
“In some cases, a consumer can rack up multiple overdraft fees in a single day without being notified until days later. Many institutions also charge additional fees for each day an account is overdrawn – the longer it takes for you to realize there’s a problem, the more fees you can be charged.”
“Sometimes, banks will even re-arrange the order in which they process your purchases, charging you for a later, larger purchase first so that they can charge you repeated overdraft fees for earlier, smaller purchases.”
“So the truth is that the ‘service’ of overdraft protection often serves as nothing more than a way for banks to profit by taking advantage of their very own customers. Last year, American consumers paid $24 billion in overdraft fees and the Financial Times recently reported that banks stand to collect a record $38.5 billion in overdraft fees this year. According to the Center for Responsible Lending, nearly $1 billion of those fees will come from young adults. Another $4.5 billion will come from senior citizens like Mario Livieri, one of our witnesses today and a resident of Branford, Connecticut.”
“I’ll let Mario tell his own story about how an initial $2 overdraft ended up in $140 in overdraft coverage fees in a matter of days. The methods his bank used will sound familiar to many Americans.”
“Families in my state of Connecticut and across the country are already struggling to make ends meet – and these unfair and excessive charges are making it even harder on them.”
“Last week, the Federal Reserve announced that they will require banks to get a customer’s consent before enrolling them in an overdraft coverage program. It was a welcome but long-overdue announcement for American consumers.”
“And, we need to do far more to protect them from these abusive practices. That’s why I introduced - The Fairness and Accountability in Receiving Overdraft Coverage Act. Senators Schumer, Reed, Brown, Merkley, Menendez, Levin, Reid and Franken have joined as cosponsors of this bill.”
“Like the Federal Reserve’s rule, our legislation would establish an opt-in rule for overdraft coverage for ATM and debit transactions. Customers would now have to consent before overdraft coverage is applied to their account. Our legislation would go further and limit the number of overdraft fees banks can charge to one per month, and no more than six per year. And that fee would have to be reasonable and proportional to the cost of processing the overdraft.”
“Our legislation would also put a stop to the practice of manipulating the order in which transactions are posted, and require banks to warn customers if they are about to overdraw their account, giving them a chance to cancel the transaction. Finally, it would require banks to notify customers promptly when they’ve overdrawn an account – through whatever means the customer chooses, from email to text message – so that they can quickly restore their balances and avoid unnecessary fees.”
“Abusive overdraft policies are blatantly unfair. And the banks know it. After it came out in the press that I was working on this legislation, a few of the large institutions took steps towards responsible reform – I assume out of the kindness of their hearts.”
“And let’s remember, regulators did little while consumers were taken advantage of by these misleading and unfair overdraft programs, despite the fact that these regulators had the power to do so for years. This is exactly why we need an independent consumer financial protection agency that would be focused on preventing these abuses and addressing them quickly rather than having to wait for Congress to act.”
“Folks like Mario deserve better. I remain committed to ensuring that American consumers are protected – and I look forward to our discussion today.”
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