Reps. Maloney and Waters Introduce Bill to Regulate So-Called Overdraft "Protection" Plans
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.
CO-SPONSORS OF THE OVERDRAFT PROTECTION ACT, H.R. 1261:
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
Clear and conspicuous overdraft coverage disclosures