Dodd Unveils Bill to Rein in Overdraft Fees
He’s been threatening to do it for weeks, and today Sen. Chris Dodd (D-Conn.) made good on his vow to push legislation reining in the overdraft charges that hit consumers who exceed their balances when making debit card purchases. Those fees — which average upwards of $30 a pop — have evolved into an enormous moneymaker for the banks, who claim that overdraft protection is a service allowing consumers to make purchases that would otherwise be denied. This year alone, the banks are expected to take in more than $38 billion in overdraft charges, according to Moebs Services, an Illinois-based financial research firm.
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.