DODD URGES FED TO PROTECT CONSUMERS FROM ABUSIVE OVERDRAFT FEES
Proposes that Fed Adopt “Opt-In” Approach to Overdraft Fees, Preventing Companies from Charging Consumers Without Their Permission
June 9, 2009
WASHINGTON, D.C. – Senator Chris Dodd (D-CT), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, urged the Federal Reserve to act as soon as possible to protect consumers from abusive overdraft fees. In a letter to Fed Chairman Ben Bernanke, Dodd called on the Fed to finalize a proposed rule that would curb the use of excessive and unfair fees when consumers overdraw their bank accounts.
Dodd further pressed the Fed to implement an “opt-in” approach to overdraft fees, which would ensure that banks would be prohibited from charging consumers an overdraft fee without their consent.
“I am concerned that some financial institutions may be increasing overdraft fees or creating new ones, which often take consumers by surprise and may bear little relation to the actual amount of overdraft,” Dodd said in the letter. “I therefore ask that you finalize the proposed rule as soon as possible to protect families across America and in my state of Connecticut from predatory overdraft practices.”
The full text of the letter is below.
The Honorable Ben S. Bernanke
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, DC 20551
Dear Chairman Bernanke:
I write to urge you to finalize as soon as possible the proposed rule amending Regulation E that would curb abusive overdraft practices, and to provide stronger consumer protections in the final rule by requiring that financial institutions obtain the affirmative consent of consumers to overdraft services before they can charge overdraft fees (the “opt-in” approach).
I appreciate the effort by the Board of Governors and staff to limit the ability of financial institutions to assess abusive overdraft fees for ATM withdrawals and debit card transactions. While the proposed rule is being finalized, however, I am concerned that some financial institutions may be increasing overdraft fees or creating new ones, which often take consumers by surprise and may bear little relation to the actual amount of overdraft. I therefore ask that you finalize the proposed rule as soon as possible to protect families across America and in my state of Connecticut from predatory overdraft practices.
Further, I ask that you adopt the opt-in approach to overdraft fees in the final rule. I understand that the proposed rule laid out two alternatives, an opt-out approach and an opt-in approach. Of the two, the opt-in approach provides far greater consumer protection because the default then would be no overdraft service and no overdraft fees unless the consumers affirmatively consent, whereas the opt-out approach essentially represents a continuation of the status quo. As you know, the credit card legislation that I authored and President Obama signed into law in May – the Credit Card Accountability Responsibility and Disclosure Act – created an opt-in regime for over-the-limit fees for credit cards. I ask that you follow this precedent and also adopt an opt-in approach in the final rule amending Regulation E for overdraft fees.
Finally, I want to thank you for your efforts to help protect American consumers and address abusive overdraft practices. I stand ready to work with you as you move forward on this important consumer protection issue.