“The industry has tried to make one last grab at their customers’ pocketbooks,” Dodd said, just before asking for the consent of Republicans to pass the bill unanimously.

No dice. Sen. Thad Cochran (R-Miss.) objected “on behalf of several senators on this side of the aisle.” There’s no word yet which other lawmakers he was referring to.

House Democratic leaders have already passed even stronger legislation that would expedite all the credit card reforms in the previously passed bill — not just the ban on hiking rates for existing balances. Dodd hasn’t signed on to the Senate version of the bill.

It’s worth mentioning that the Democrats — folding to pressure from the banks — were themselves responsible for delaying those reforms, which were initially proposed to go into effect much earlier  this year.

“Giving customers the chance to choose whether they want ‘overdraft protection’ is important,” Senate Banking Committee Chairman Chris Dodd (D-Conn.) said in a statement, “but we need to do far more to protect customers from abusive bank products. We still need to stop the excessive fees, repeated charges, lax notification, and processing manipulation that have become standard in these so-called overdraft ‘protection’ programs.”

Rep. Carolyn Maloney (D-N.Y.) just weighed in with an identical message.

While these rules are a good, solid step forward, they don’t eliminate the need for Congressional action on this issue. The Fed still allows institutions to charge an unlimited quantity of overdraft fees, would do nothing to make fees proportional to the amount of the overdraft, and would not address the manipulation of posting order of charges to accounts. Under the Fed’s new rule, a $5 cup of coffee could still become a $40 cup of coffee after an overdraft fee is added!

Both Dodd and Maloney have introduced legislation that goes a good deal further to protect consumers from overdrafts than the Fed’s new rules. Aside from the opt-in stipulation, those bills would also: (1) cap the number of fees at one per month and six per year; (2) require banks to warn customers at the counter if a purchase would overdraw their account, allowing them to opt out; (3) require that the charge be proportionate to the banks’ cost to process the transaction; and (4) prohibit banks from reordering purchases in order to maximize the number of overdraft fees.

The Fed’s new rules don’t tackle any of those things.

On several key points, though, Dodd breaks sharply from the White House. Most notably, the Senate Banking Committee chairman wants to create yet another agency to police Wall Street, rather than expanding the powers of the Federal Reserve in that role, as Treasury Secretary Tim Geithner has argued is necessary.

The Washington Post examines the significance:

[O]n key points Dodd’s bill breaks with the administration and with the House version of the legislation. The administration favors increasing the Fed’s regulatory powers and preserving the regulatory responsibilities of the Federal Deposit Insurance Corp. Dodd wants to strip both agencies of their powers.

Dodd’s differences with the House and the administration could reduce the chances that Congress can complete work on financial reform by the end of the year, a stated goal of Democratic leaders.

“Dodd,” the Post added, “said he hopes to begin the formal process of approving his bill during the first week of December.”

“[N]o sooner had it been signed into law, but credit card companies were looking for ways to get around the protections this Congress and the American people demanded,” Dodd said in a statement. “This bill would end those abuses and further protect customers today.”

But Dodd’s bill, by carving out the retroactive rate-hike reform, doesn’t go nearly as far as several separate proposals to expedite all of the credit card reforms passed earlier in the year. The House Financial Services Committee approved that legislation last week, and an identical Senate bill appeared the same day.

Calls and emails to Dodd’s office seeking comment on the larger expedited reform bill were not returned last week. His newly introduced proposal explains why.

Both bills would require banks to get customer consent before enrolling them in the overdraft protection program; both would cap the number of overdraft fees at six per year; both would require banks to notify customers beforehand when a purchase or ATM withdrawal is set to trigger an overdraft fee; and both would prohibit banks from re-ordering transactions for the purpose of maximizing the number of fees.

One significant distinction between the chambers’ bills: the House proposal would also apply to written checks that overdraw an account, not just debit purchases that exceed balances. The Senate bill excludes checks as it applies to the opt-in provision.

There’s a lot at stake here — both for consumers and the banking industry — as overdraft fees have evolved into an enormous money-maker for the banks. This year alone, the banks are expected to reap more than $38 billion in overdraft charges, according to Moebs Services, an Illinois-based financial research firm.

Translation: Don’t expect the industry to take this one sitting down.

So after some Democrats initially delayed the implementation date until next year — a naked bow to the banking industry — others are now trying to change the implementation timeline so the reforms take effect sooner.

Indeed, the House Financial Services today is marking up legislation to do just that. The bill, sponsored by Reps. Carolyn Maloney (D-N.Y.) and Barney Frank (D-Mass.), would expedite the reforms so that they kick in Dec. 1 — 12 weeks earlier, for most provisions, than the existing law.

Boosting the effort, Sen. Mark Udall (D-Colo.) today introduced an identical proposal in the upper chamber.

Outside of the legislative effort, Democrats have been urging the Federal Reserve, which is responsible for implementing the legislation, to expedite the reforms on its own. But Fed Chairman Ben Bernanke told lawmakers this week that, while the quicker start date “could provide benefits for consumers, the [Fed] continues to believe that, given the breadth of the changes required by the [law], card issuers must be afforded sufficient time for implementation to allow for an orderly transition.”

In a letter to Rep. Spencer Bachus (Ala.), senior Republican on the Financial Services Committee, Bernanke also claimed that expediting the reforms unilaterally would steal an opportunity from the public and the card companies to comment on the change.

That response riled Sen. Charles Schumer (D-N.Y.), who said this week that if the Fed doesn’t make the changes, “we should quickly pass legislation in both the House and Senate to do so.”

Stay tuned…

Those calls gained some volume this morning in the Senate Banking Committee, where Chairman Chris Dodd (D-Conn.) reiterated the importance of granting the extension before the program expires six weeks from now.

“In addition to helping middle class families achieve the dream of homeownership, the tax credit has helped to stabilize housing prices and the market at large,” Dodd argued in a statement. “The credit is set to expire in five weeks. But the work of stabilizing the housing market won’t be done.”

Dodd, along with Sen. Johnny Isakson (R-Ga.), have sponsored a bill to extend the credit through next June. The Obama administration, though, is wary of the additional costs following news that deficit spending hit $1.4 trillion in the fiscal year that ended Oct. 1. Indeed, Shaun Donovan, secretary of the Department of Housing and Urban Development, told Dodd’s committee Tuesday that the administration isn’t ready to commit to the homebuyer tax-credit extension, arguing that officials first want to weigh the costs versus the benefits.

“I am mindful that these proposals can be very expensive,” Donovan said, “especially at a time of significant budget deficits.”

Dodd, who chairs the Senate Banking Committee, argues that consumers are often signed up for the “service” automatically, and rarely have warning at the counter that they’re about to exceed their balance.

“At a time when many can afford it least, American consumers are being hit with hundreds of dollars in penalties for overdrawing on their account by just a few dollars,” Dodd said in a statement. “Banks should not be trying to bolster their profits at the expense of their customers.”

Dodd’s bill would: (1) require banks to get the customer’s consent before enrolling in the overdraft protection program; (2) cap the number of fees at one per month and six per year; (3) require banks to warn customers at the counter if a purchase would overdraw their account, allowing them to opt out; (4) require that the charge be proportionate to the banks’ cost to process the transaction; and (5) prohibit banks from reordering purchases in order to maximize the number of overdraft fees.

Sens. Sherrod Brown (D-Ohio), Charles Schumer (D-N.Y.) and Jack Reed (D-R.I.) have cosponsored the measure. A similar bill, introduced by Rep. Carolyn Maloney (D-N.Y.), has been floating around the House for months.  No word yet, however, if these proposals will be included as part of the Democrats’ plans to move sweeping finance regulations this year.

“These billions of dollars drained from consumers each year represent lost opportunities for families to save for a rainy day or buy necessary goods and services that could help spark the economy,” CRL senior researcher Leslie Parrish said in a statement.

Moebs Services, an Illinois-based financial research firm, estimates the 2009 overdraft revenue will top $38 billion.

The results shouldn’t come as much of a surprise, for several reasons. First, banks, recognizing the profit-churning potential of overdraft fees in recent years, have grown more sophisticated in their methods of triggering them. Some, for example, will reorder debit purchases by amount, rather than chronology, in order to maximize the number of overdraft fees slapped on consumers.  Also, the increase in joblessness that’s accompanied the recession means that more bank accounts are hovering near empty. (Of course, it was the banks that were primarily responsible for the economic collapse that caused the recession, so for them now to be hitting affected consumers with additional fees to pad their profit margins only adds insult to injury.)

The trend has caught the eye of some powerful lawmakers, who are hoping this year to pass legislation to protect consumers from runaway overdraft fees. A House bill, sponsored by Rep. Carolyn Maloney (D-N.Y.), would prohibit banks from charging the fees unless consumers sign up for the overdraft protection service. It would also prevent banks from reordering purchases in order to maximize the number of overdraft fees.

Senate Banking Committee Chairman Chris Dodd (D-Conn.) says he plans to introduce a similar bill shortly.

The bill is sure to provoke an outcry from the banking industry, which claims the overdraft policy protects consumers by covering their purchases even when accounts have run dry. But many lawmakers and consumer groups maintain that the fees — averaging nearly $30 a pop — are excessive, particularly because consumers are rarely informed that they’re about to exceed their balance — or that a $30 penalty will accompany their latte purchase.

There’s a lot at stake here. Overdraft fees are estimated to bring the banks more than $38 billion this year alone, The Washington Post reported today, citing data from Moebs Services, an Illinois-based financial research firm.

Similar legislation to rein in overdrafts, introduced by Rep. Carolyn Maloney (D-N.Y), has been sitting idle in the House for months.

You’ll recall that Dodd recently passed on the chance to take over the chairmanship of the Senate Health, Education, Labor and Pensions Committee, saying there is  “important work” left for the Banking panel. He was talking about a slew of new finance industry reforms the Democrats hope to tackle this year, of which overdraft reform is just one piece.

Facing a difficult election next year, Dodd will need such victories to convince a skeptical public that the millions of dollars he’s accepted from the banks over the years haven’t left him using kid gloves when it comes to taking on the industry.

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