---

Published: October 2009

Curb unfair overdraft protection practices

Coalition: Bank Fees

Consumer advocates, including Consumer Action, joined in a letter asking Congress to pass a bill curbing unfair bank overdraft fees. On Friday Oct. 30, the House Financial Services Committee will hold a hearing on H.R. 3904, the Overdraft Protection Act of 2009 which would, among other provisions, require a warning before a withdrawal would trigger an overdraft fee and allow consumers to choose whether or not to enroll in overdraft programs.

Below is an excerpt from the letter:

As you are well aware, overdraft loans cost consumers nearly $24 billion each year and are typically charged without consumers’ explicit consent.  Fee-based overdraft coverage is, by far, the most expensive way to have an overdraft covered.  But financial institutions typically automatically enroll their customers into this coverage, rather than encouraging them to choose among lower cost options.  Often, these financial institutions then manipulate the order in which they post transactions, which further maximizes fees.  

The most common triggers of overdraft fees are debit card transactions that could easily be denied for no fee; in fact, until recent years, they most often were.  Today, banks and credit unions routinely approve debit card overdrafts with no warning, charging a fee averaging $34 for an overdraft averaging only $17.  All too often, charging overdraft fees on debit cards unnecessarily forces low-income families into a cycle of snowballing fees that eats up a large portion of their paychecks.

Research shows that overdraft fees hit lower-income consumers and communities of color especially hard.  At a time when families are suffering tremendous blows to their net worth because of predatory lending practices, we are obligated to do all that we can to protect these financial assets from further abuse.

H.R. 3904 would address the most abusive features of today’s typical overdraft programs by establishing the following key reforms, among others: 

• requiring that all overdraft fees be reasonable and proportional to the cost to the institution of processing the transaction;
• limiting the number of overdraft fees institutions can charge per month and per year, without preventing them from offering a lower cost alternative if they want to continue charging for overdrafts;
• requiring institutions to obtain consumers’ affirmative consent to fee-based overdraft coverage;
• clarifying that overdraft fees are a finance charge under the Truth in Lending Act;
• requiring a real-time warning at an ATM before a cash withdrawal would trigger an overdraft fee;
• prohibiting institutions from reordering transactions to maximize fees.

Lead Organization

Center for Responsible Lending

Other Organizations

American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) | Americans for Fairness in Lending (AFFIL) | Black Leadership Forum | Center for Responsible Lending | Consumer Federation of America | Consumers Union | CWA-UAW Legislative Alliance | Leadership Conference on Civil Rights | NAACP | National Association of Consumer Advocates | National Black Caucus for Local Elected Officials (NBC-LEO) | National Consumer Law Center (on behalf of its low-income clients) | National Consumers League | National Council of La Raza | National People’s Action | Public Citizen | Sargent Shriver Center on Poverty Law | Service Employees International Union | U.S. PIRG

Download PDF

No Download Available