September 23, 2009
DODD STATEMENT ON BANK CHANGES TO OVERDRAFT FEES
WASHINGTON – Five days after Banking Committee Chairman Chris Dodd (D-CT) announced he is working on a bill to rein in abusive overdraft fees, the nation’s two largest banks announced steps towards needed reforms.
J.P. Morgan Chase and Bank of America today announced they would limit fees charged to customers for overdrawing their bank accounts.
“These are positive changes, but the system has gotten completely out of whack,” said Dodd. “We are talking about abusive practices that never should have been instituted in the first place. I will take a close look at the banks’ new policies as I continue work on a bill to permanently protect customers from excessive overdraft fees.”
Last week Dodd announced he was working on legislation to curb abusive practices that slapped bank customers with $38.5 billion in fees for overdrawing their accounts.
So-called “overdraft protection programs” enable customers to overdraw their accounts, without their knowledge, when they use checks, electronic transfers, debit card purchases, and ATM withdrawals. Account holders are often enrolled in the programs without their consent and many banks will hit customers with fees upwards of $30 for this “courtesy” even if their account is only overdrawn by a few cents.
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.”
Dodd is working on the new legislation with Sen. Chuck Schumer (D-NY). Rep. Carolyn Maloney (D-NY) has introduced legislation in the House.
To read the FDIC study on overdraft fees CLICK HERE.
September 18th Press Release:
Dodd to Introduce Legislation to Reign in Excessive Checking Account Overdraft Fees
WASHINGTON – Today, Senate Banking Committee Chairman Chris Dodd (D-CT) announced he is working on a bill to protect Americans from excessive checking account overdraft fees.
“Excessive, automatic overdraft fees are forcing many American families deeper into debt at a time when they are already struggling to make ends meet,” said Dodd. “I am working on a bill to protect consumers from these fees.”
So-called “overdraft protection programs” enable customers to overdraw their accounts, without their knowledge, when they use checks, electronic transfers, debit card purchases, and ATM withdrawals. 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 the largest purchases a customer makes first, draining accounts faster and creating the potential for multiple fees on multiple smaller purchases. Even on point of sale transactions, such as debit card or ATM transactions, banks do not notify the customer when they are withdrawing against insufficient funds. As a result, customers can unknowingly be charged hundreds of dollars in fees for only overdrawing their account on a few small purchases.
It is a service most customers do not know they have and may not want. According the Center for Responsible Lending (CRL), 80% of consumers would rather have their transaction denied than have it covered in exchange for a fee.
Dodd’s bill will require customers to “opt-in” to these programs, prohibiting banks from charging consumers overdraft fees without their consent.
Reports continue to indicate that banks are charging customers record amounts in overdraft fees. The Financial Times 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.
Earlier this year, Dodd sent a letter to Federal Reserve Chairman Ben Bernanke urging him to act as soon as possible to protect consumers from abusive overdraft fees. 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, and further pressed the Fed to implement an “opt-in” approach to overdraft fees, similar to the “opt-in” approach to over-the-limit fees for credit cards that Dodd included in the Credit CARD Act.
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