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Reps. Maloney and Waters Introduce Bill to Regulate So-Called Overdraft "Protection" Plans

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Washington, DC, March 20, 2013 | comments

Rep. Carolyn Maloney (D-NY), senior member of the House Financial Services Committee, along with Rep. Maxine Waters and 44 other cosponsors, today announced the introduction of the “Overdraft Protection Act”, H.R. 1261, at an event outside the House chambers. The bill would require a bank or other financial institution to obtain a consumer’s affirmative opt-in to any overdraft protection plan and also require clear disclosure of coverage and “reasonable and proportional” fees, would ban the manipulation of transaction posting order in a way that maximizes fees paid to the institution, and would cap the number of fees that can be assessed to a maximum of one per month and six per year.

“Debit cards can now be used to pay for almost anything from dry cleaning to parking meters, and that makes everyday life more convenient,” Rep. Maloney said. “But the omnipresence of swipe-card terminals also make it easier than ever to overdraw an account and incur an overdraft fee without even knowing it. So a $5 cappuccino can become a $35 cappuccino in an instant.  

“Some institutions have responded to consumer outrage over these fees by implementing a policy of denying debit card transactions that would overdraw an account, and some have also ended the practice of re-ordering the posting of transactions in a way that maximizes fee income—and I applaud them for their responsiveness.

“But many institutions have not voluntarily reformed these practices, and a new study out this week by Moebs Services reveals that overdraft fee income to banks has ticked up for the first time in three years. Even as the CFPB is determining its regulatory path forward on overdraft practices, it’s time for Congress to establish rules of the road for regulators, consumers, and financial institutions.

“My bill expands the opt-in requirement to paper checks, ATMs, and recurring monthly payments-- and also increases disclosure to consumers when an overdraft occurs, limits the fees’ price and frequency, and bans the manipulation of transactions. These are common-sense fixes to a banking marketplace,” Maloney concluded.

“I am proud to be an original co-sponsor of this critical legislation to protect consumers from calculated strategies by some financial institutions to generate  unfair overdraft fees,” Ranking Member Waters said. “The legislation introduced today is common-sense bill which all Members of Congress should embrace.  It is in the best tradition of true consumer protection.  I ask my Republican colleagues to join our efforts and to move quickly to pass this legislation so consumers can be assured of fair treatment.”

“These fees are unfair and regulators should have reined them in a long time ago,” said Ken Edwards, Vice President of Federal Affairs, Center for Responsible Lending

“Vulnerable consumers, including young people and low-income populations, are disproportionally impacted by overdraft fees, which can cause them to close their accounts and view all financial institutions with distrust. The current overdraft rules are confusing and don't go far enough to protect consumers from multiple overdraft fees and the arbitrary reordering of daily debits. Consumer Action supports the Overdraft Protection Act because it would enhance consumer protections and create a more fair banking environment for consumers,” said Linda Sherry, Director of National Priorities, Consumer Action.

“In 2010, regulators slowed the flood of bank revenue from unfair overdraft schemes,” said U.S. PIRG Consumer Program Director Ed Mierzwinski. “But Congress needs to step in to finish the job so consumers won’t have their wallets emptied by bank tricks and traps.”

“If banks want to offer credit, they should do it in an open, honest and affordable manner, not by tricking consumers into predatory loans at loan shark prices," said Lauren Saunders, Managing Attorney of the National Consumer Law Center.

“Consumers, particularly consumers that frequently have low account balances, need the assurance that they will be able to pay bills, buy groceries and conduct everyday transactions without punitive and unfair fees,” said Tom Feltner, Director of Financial Services, Consumer Federation of America.  “Preventing multiple overdraft fees and expanding opt-in requirements to checks and other transactions will protect consumers and their bank accounts,” said Tom Feltner, Director of Financial Services, Consumer Federation of America



The growth in debit cards has been substantial; debit card transaction volume surpassed credit cards in 2006. Financial analysts Moebs Services estimates that overdraft fee income totaled $31.6 billion in 2011, with debit card share still climbing, to 43% in 2011 (from 39% in 2010).

In February, 2012, the CFPB opened an investigation into how banks levy overdraft fees on consumers.

Pew’s Safe Checking in the Electronic Age Project in October, 2012, updated their report Hidden Risks: The Case for Safe and Transparent Checking Accounts (April 2011), continuing their study of checking account terms and conditions to examine both the state of the marketplace and the effect of current regulations. This study revisits and expands on the original research of the 10 largest banks by collecting additional data found online from the 12 largest banks and the 12 largest credit unions (as determined by their domestic deposit volumes). There continue to be key banking practices that put consumers at financial risk and potentially expose them to high and unexpected costs for little benefit.
Read that report at



Waters, Dingell, Lowey, Capuano, Ellison, Moore, Sherman, Sewell, Clay, Cleaver, Foster, Holmes Norton, Schakowsky, Rush, Tsongas, Tonko, Van Hollen, Conyers, Rangel, F. Wilson, Carson, Serrano, Blumenauer, Nadler, Honda, Eshoo, Cicilline, McGovern, T. Bishop, Holt, Moran, Cohen, Chu, Matsui, Langevin, Sanchez, Veasey, Jackson Lee, Bass, Tierney, G. Miller, T. Ryan, Slaughter, Ruppersberger


Summary of the Overdraft Protection Act of 2013

The Overdraft Protection Act is necessary to establish fair and transparent practices related to the provision of overdraft coverage programs. The legislation would codify Federal Reserve rules that require depository institutions to provide consumers with the opportunity to opt-in to overdraft coverage for all transactions.  In addition, it would provide strong new protections and disclosures for consumers with respect to these transactions. 

Stronger consumer protections

  • Opt-in.  Codifies 2010 Federal Reserve Rules that require institutions to provide consumers the opportunity to consent in writing to overdraft coverage for a fees associated with these programs and extends those protections to checks in addition to debits.
  • Limits on overdraft coverage fees.  Prohibits institutions from charging more than one overdraft coverage fee per month and more than six per year.
  • Reasonable and proportional overdraft coverage fees.  Requires that all overdraft coverage fees be reasonable and proportional to the amount of the overdraft.
  • Posting order.  Prohibits institutions from posting transactions in order to maximize overdraft fees.
  • Debit holds.  Prohibits institutions from charging an overdraft coverage fee on any type of transaction, if the overdraft results solely from a debit hold placed on an account that exceeds the actual dollar amount of the transaction.
  • Prepaid Cards. Directs the Consumer Financial Protection Bureau (CFPB) to study the practices of overdraft policies related to prepaid cards and authorizes the CFPB to extend the overdraft provisions to these products if it deems it necessary. 

Clear and conspicuous overdraft coverage disclosures

  • Opt-In Disclosures. Requires institutions to notify consumers when they are deciding to opt into overdraft coverage that if they do not opt in their transactions may be declined and they will not be charged a fee when those transactions are declined.
  • Overdraft coverage fee limit.  Requires institutions to clearly disclose to consumers that they will be charged no more than one overdraft coverage fee per month and no more than six overdraft coverage fees per year, and that the institution retains the discretion to pay without charge or reject any other overdrafts incurred.
  • Alternative overdraft coverage.  Requires institutions to provide information about any alternative overdraft services and products that are available at such institutions, including a clear explanation of how the terms and fees for such alternative services and products differ.
  • Disclosure of overdraft coverage fees on periodic statements.  As part of a periodic statement, requires institutions to clearly disclose the dollar amount of overdraft coverage fees charged to the consumer for the relevant period and year to date.
  • Account balance information.  Prohibits institutions from including the amount available under a consumer’s overdraft coverage program as part of the consumer’s account balance.
  • Prompt notification.  Requires institutions to promptly notify consumers, through a reasonable means selected by the consumer, when overdraft coverage has been accessed.  
  • Terminated or suspended overdraft coverage program.   Requires institutions to provide prompt notice, through a reasonable means selected by the consumer, if the institution terminates or suspends a consumer’s access to an overdraft coverage program, including a clear rationale for the action.
  • Notice and opportunity to cancel.  Requires institutions to warn the consumer if completing a transaction at an ATM terminal or branch teller may trigger overdraft coverage fees, including the amount of the fees.  In addition, requires institutions to provide consumers with the opportunity to cancel the transaction before it is complete. 



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