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Lawmakers Target Bank Overdraft Fees

Democrats want Fed to restrict "courtesy" program

May 29, 2009

Reps. Carolyn B. Maloney (D-NY), Barney Frank (D-MA), and Luis Gutierrez (D-IL) want consumers to opt-in to overdraft programs, rather than have banks sign them up automatically. They also want rules that would prohibit the posting of transactions in a sequence which maximizes overdraft fees.

"Overdraft fees...often take consumers completely by surprise...and {are} usually vastly disproportionate to the amount of the overdraft itself," the lawmakers said in a letter to Federal Reserve Chair Ben S. Bernanke. "It is only fair, then, that institutions be required to obtain consumers' affirmative consent before enrolling them in fee-based overdraft programs."

In releasing the letter, Maloney praised the Fed's effort to explore overdraft remedies but said, consumers simply shouldn't be enrolled in overdraft programs without their consent.

"Since Congress just required an affirmative opt-in to over-the-limit fees in my credit card reform law, regulations should similarly require an opt-in to overdraft fees," she said. "Whenever banks step over the line of reasonable business practices into abuse of consumers' trust and understanding, government needs to act."

Consumer have long complained about overdraft fees, saying they would prefer to have their purchase declined by the merchant if it would overdraw their account. Instead, the bank covers the overdraft but charges a fee.

"When overdraft fees are $30 or more, a $5 treat at Starbucks becomes a $35 shock after the overdraft fee is applied," Maloney said. "And when multiple purchases in a day are posted in a sequence that only benefits the bank—incurring multiple fees—then something is broken in the system and must be fixed."

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