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We're So Over Overdraft Fees
Update from our federal Consumer Program Director Ed Mierswinski: In response to Senator Chris Dodd's legislation to regulate overdraft fees, Chase and Bank of America have responded to by announcing changes to their overdraft policies (Washington Post and New York Times). Obviously, the banks are hoping to block a law. Laws protect consumers better than press releases do, so we urge Senator Dodd to keep pushing for a law. 1) A press release can be reversed, so we need a law to guarantee rights. 2) Plus, there are over 6,000 other banks and credit unions-- most are also imposing unfair overdraft fees. 3) B of A says opt-in to overdraft "protection" for new customers only, just an opt-out for old-- that is unacceptable-- we need opt-in for all. 4) B of A says limit to 4 overdrafts/day-- that's not even close to what is needed as it is still imposing up to $140 fees/day (at $35/pop). 5) Chase says it will not re-order checks and debits to increase fee income, but will post them chronologically; that excellent step should have been matched by B of A but wasn't.
Here's the background: Late last week, Senate Banking Chairman Chris Dodd (D-CT) announced that he planned to tackle unfair bank overdraft fees. It's a welcome move. We outlined the problem in testimony earlier this year in the House, where Rep. Carolyn Maloney (D-NY) has labored single-handedly on the issue, which pits big banks, small banks, and some credit unions against reform. Together, analysts predict that the industry will earn some $38 billion on the fees this year, which have grown dramatically on debit overdraft income, not bounced check income. The banks are truly addicted to fees. Often, the bank knowingly allows small debit transactions that cause overdrafts. Often, the bank changes the order of cleared checks and debits to maximize the number that cause overdrafts. Sometimes, the bank imposes overdrafts on deposited, but "unavailable" funds, even for long-term customers. A few blogs go into the details.
As the Washington Post noted, House Chairman Barney Frank's (D-MA) view (shared by consumer advocates, including U.S. PIRG) is that establishing a Consumer Financial Protection Agency should be our first priority, because it could regulate overdrafts (and other unfair practices) better than Congress could, but... Frank said new [overdraft] rules clearly were necessary, but if Congress voted to create a new consumer protection agency, it could write the rules. If the banking industry succeeds in its opposition to the new agency, he said, he would favor a strong overdraft bill.
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