November 12, 2009
DODD ON FED’S NEW OVERDRAFT FEE RULE
Fed Will Require Customers’ Permission Before Banks Can Charge Overdraft Fees
Next Week: Banking Committee to Hold Hearing on More Ways to Protect Consumers from Excessive Checking Account Fees
WASHINGTON – Senate Banking Committee Chairman Chris Dodd (D-CT) welcomed today’s release of a new Federal Reserve rule that will require banks to get a customer’s consent before enrolling them in an overdraft coverage program. Banks use these programs allow customers to overdraw their accounts without their knowledge, and then slap them with fees of upwards of $30 for this “courtesy.”
Dodd wrote the Federal Reserve in June calling on them to issue this “opt-in” requirement as soon as possible. Absent Fed action, Dodd included the requirement that customers are not able to overdraw their accounts unless they’ve given the bank permission to charge them overdraft fees in the more comprehensive FAIR Overdraft Coverage Act he introduced last month.
“This is a long-overdue announcement for American consumers,” said Dodd. “Giving customers the chance to choose whether they want ‘overdraft protection’ is important, but we need to do far more to protect customers from abusive bank products. We still need to stop the excessive fees, repeated charges, lax notification, and processing manipulation that have become standard in these so-called overdraft ‘protection’ programs.”
Dodd is the author of The Fairness and Accountability in Receiving (FAIR) Overdraft Coverage Act, which includes a similar overdraft protection “opt-in” rule along with further protections for consumers including:
· 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 Center for Responsible lending, jointly with the Consumer Federation of America, Consumers Union, the National Consumer Law Center, and U.S. PIRG praised the introduction of Dodd’s bill last month and offered their strong support for the legislation.
On TUESDAY at 3:00 P.M., Dodd will convene a Banking Committee hearing to discuss the FAIR Overdraft Coverage Act and to hear from consumer advocates, financial institutions, and a victim of excessive overdraft fees about how to better protect American consumers from these unfair practices.
A summary of the FAIR Overdraft Coverage Act is available here.
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