“This new rule is certainly better, but still not good enough,” Maloney said. “It’s the customers’ money – they should get to decide whether they want to pay for overdraft coverage or not. Banks shouldn’t be allowed to stick customers in overdraft programs, or charge for covering an overdraft transaction, without the customer’s say-so. This proposed rule does not protect bank customers from those abuses, but my bill would.”

Maloney’s bill, the Consumer Overdraft Protection Fair Practices Act (H.R. 946 in the 110th Congress), would require notice to customers when an ATM or point-of-sale debit card transaction was about to trigger an overdraft and would give consumers a choice to accept the overdraft service, and the associated fee, or not. This legislation also requires full disclosure of the terms and charges associated with an overdraft program and an opportunity for account holders to opt in-- that is, to choose to have an overdraft plan or not.  Also, it prohibits manipulation of the order of posting deposits and withdrawals so as to maximize overdraft fees.

In the proposed rule, the Fed asks for public comment on whether banks should be required to offer customers opt-in to overdraft programs or whether an opt–out mechanism is sufficient. The proposed rule deals solely with electronic fund transfers [ATM withdrawals and point-of sale (POS) transactions].  It does not address deposit manipulation or pre-transaction disclosure of potential overdrafts at ATMs and stores.  

Background: The need for reform of overdraft fees is becoming more urgent, as several government and independent reports and actions this year confirmed.  In November, the Federal Deposit Insurance Corporation released a study of bank overdraft programs showing, among other things, that over 75% of surveyed banks automatically enroll their customers in an overdraft program and some do not allow customers to opt out.

Last August, the nonpartisan Government Accountability Office (GAO) released a report showing that consumers are not told about, and can’t avoid, many overdraft fees. In 2007, the nonpartisan Center for Responsible Lending released a report showing that customers are paying $17.5 billion annually in fees for overdrawing their bank accounts, up 70% from the $10.3 billion they paid in 2004. 

The public may submit comments, identified by Docket No. R-1343, by any of the following methods:

• Agency Web Site: http://www.federalreserve.gov. Follow the instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
• Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.
• E-mail: This email address is being protected from spam bots, you need Javascript enabled to view it Include the docket number in the subject line of the message.
• FAX: (202) 452-3819 or (202) 452-3102.
• Mail: Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington, DC 20551
 

For more information, please visit Rep. Maloney’s overdraft reform web page here .