October 19, 2009


WASHINGTON – Today, Senate Banking Committee Chairman Chris Dodd (D-CT) will file The Fairness and Accountability in Receiving (FAIR) Overdraft Coverage Act, a bill to protect Americans from excessive checking account overdraft fees.  Senators Jack Reed (D-RI), Chuck Schumer (D-NY), Sherrod Brown (D-OH), and Jeff Merkley (D-OR) are original co-sponsors of the bill.
“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.  Banks should not be trying to bolster their profits at the expense of their customers,” said Dodd. “This legislation gives Americans control over their bank accounts – giving them the chance to choose whether they want overdraft protection, establishing strict limits on these fees, and shining more light on these practices.”
“Overdraft charges on debit cards are often deceptive because most people never asked for overdraft protection and logically assume they can only spend money they have.  The FAIR Overdraft Coverage Act will give consumers more choices and prohibit banks from levying excessive, hidden fees on individuals and families who are struggling to keep their homes and jobs,” said Reed.
“Overdraft protection is billed as a customer service, but it is actually anything but. The bottom line is, debit cardholders are getting scammed by their banks. Families across the country are being involuntarily placed in these overdraft loan programs and getting ripped off by excessive fees. It's time to stop this practice dead in its tracks.  This crackdown on overdraft policies is overdue,” said Schumer.
“Taxpayers helped stabilize the financial services industry – big banks should not return the favor by slamming consumers with billions of dollars in overdraft fees. In Ohio alone, it’s estimated that consumers paid nearly $900 million in overdraft charges last year. This is about putting consumers first,” said Brown. 
“With these stealth overdraft fees, banks reach in and take money out of the wallets of hardworking Americans,” said Merkley.  “These fees are not transparent, they’re not fair, and they need to end.”
So-called “overdraft protection programs” enable customers to overdraw their accounts, without their knowledge, when they make debit card purchases, electronic transfers, ATM withdrawals or use checks.  Account holders are often enrolled in the programs without their consent and many banks will slap customers with fees of upwards of $30 for this “courtesy” even if their account is only overdrawn by a few cents. 
Some banks maximize penalties by processing larger purchases first, draining accounts faster and creating the potential for multiple fees on multiple smaller purchases.  Even on debit card or ATM transactions, banks do not notify the customer when they are withdrawing against insufficient funds.   As a result, a few small purchases can result in hundreds of dollars in fees before a customer is notified.
The FAIR Overdraft Coverage Act will rein in abusive fees, give customers greater choice, and bring greater transparency to these programs. The bill would:
·         Require banks to get a customer’s consent before enrolling them in an overdraft protection program for ATM and debit card transactions;
·         Limit the number of overdraft coverage fees banks can charge to one per month and six per year;
·         Require fees be proportional to the cost of processing the overdraft;
·         Stop institutions from manipulating the order in which they post transactions in order to rack up extra fees;
·         Require customers be notified when they overdraw their account and be given the option of being notified by email, text or traditional mail; and
·         Require that customers be warned if an ATM or branch teller transaction will overdraw their account, and be given the chance to cancel the transaction.
Moeb’s Services reported that banks stand to collect a record $38.5 billion in fees for customer overdrafts this year.  The most cash-strapped customers are the hardest hit, with 90 per cent of overdraft fees coming from 10 percent of checking account holders.  According to the Center for Responsible Lending, banks collect nearly $1 billion per year in overdraft fees from young adults and $4.5 billion from senior citizens.
Last month, five days after Dodd announced he was drafting this bill, three of the nation’s largest banks - J.P. Morgan Chase, Bank of America, and Wells Fargo announced moderate changes to their overdraft coverage programs.  In June, Chairman Dodd wrote Federal Reserve Chairman Ben Bernanke, asking the Fed to require banks receive customers’ permission before enrolling them in “overdraft protection programs,” similar to the “opt-in” approach to over-the-limit fees for credit cards that Dodd included in the Credit CARD Act.
Rep. Carolyn Maloney (D-NY) has also introduced legislation in the House.
Below is a full summary of the bill.
Summary of the FAIR Overdraft Coverage Act of 2009
Protecting Customers from Excessive Checking Account Overdraft Fees
The Fairness and Accountability in Receiving Overdraft Coverage Act of 2009 reins in abusive overdraft coverage programs by giving customers choice, transparency, and protection from excessive fees.  Below is a summary of the bill.
Gives Customers Real Choice
·         Requires Customer Consent for Enrollment:  Requires customers opt-in before they can be enrolled in overdraft coverage programs that charge fees for covering ATM withdrawals and debit card transactions.
·         Prohibits Discrimination if You Do Not Enroll:  Prohibits banks from punishing customers who do not enroll by denying them access to unrelated preferential terms, conditions, or features available to other customers.
Limits Overdraft Coverage Fees
·         Limits Number of Fees:  Prohibits institutions from charging more than one overdraft coverage fee a month and more than six a year. Institutions can either pay additional overdrafts without fees or reject them.
·         Requires Reasonable Fees:  Requires fee amounts be proportional to the cost of processing the overdraft.
·         Ends Processing Manipulation:  Prohibits institutions from manipulating the order in which they post transactions in order to rack up extra fees.
·         No Fees for “Holds”:  Prohibits fees if an overdraft is due solely to a bank hold– such as the hold placed on funds when reserving a hotel - if the hold is greater than the actual amount of the transaction.
·         Study Point-of-Sale Transactions:  Requires GAO to study the feasibility of warning customers when they use debit cards for purchases that trigger overdraft fees and giving them the chance to cancel the transaction. 
Increases Transparency
·         Customers Must Be Notified of Overdraft: Requires customers be notified when they overdraw their account and gives the customer the option of choosing to be notified by email, text or a letter.
·         Advanced Warning and Opportunity to Cancel:  Requires that customers be warned if a transaction at an ATM or branch teller will overdraw their account, and be given the chance to cancel the transaction.
·         Show Fees on Statements:  Requires periodic statements clearly disclose the amount of overdraft coverage fees charged for the statement period and year-to-date.
·         Account Balance Information:  Prohibits institutions from including the amount available under an overdraft coverage program as part of the customer’s account balance.
·         Disclose Options:  Requires institutions to inform customers of the different overdraft services and products they provide, including how terms, fees and products differ.
·         Explain Terminated or Suspended Programs:   Requires customers be notified, by a medium of their choice, if an overdraft coverage program is terminated or suspended and why.
·         Fair Marketing:  Prohibits unfair and deceptive marketing practices of overdraft coverage programs and requires clear disclosure of overdraft coverage fees in marketing materials.
Protects Customer’s Credit Scores:  Prohibits institutions from negatively reporting to consumer credit report agencies if an overdraft amount and fee are paid under the terms of an overdraft coverage program.
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