Congresswoman Carolyn Maloney - Consumer Overdraft Protection Fair Practices Act

Consumer Overdraft Protection Fair Practices Act

Hidden overdraft fees are becoming an increasing problem for bank customers. I first introduced legislation to deal with overdraft fees in the 108th Congress, reintroduced overdraft reform legislation in the 109th and 110th Congress, and plan to reintroduce my bill in the 111th Congress.

My 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 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. This bill is modeled on the successful legislation requiring disclosure at ATMs, when an ATM transaction triggers a fee. Just as individuals may choose the convenience of withdrawals from an ATM, so they may choose the convenience of overdraft protection – but they deserve to know what the cost of that service is.

The need for reform of overdraft fees is becoming more and more urgent, as several government and independent reports and actions this year confirmed. In December, the Federal Reserve, the Office of Thrift Supervision (OTS), and the National Credit Union Administration (NCUA) proposed a new rule on this issue in response to thousands of comments – including comments submitted by myself together with Chairman Frank - urging a stronger rule than that proposed by the agencies in May. This 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. In August, the nonpartisan Government Accounting Office (GAO) released a report showing that consumers are not told about, and can’t avoid, many overdraft fees. Last year, 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.

In the 110th Congress I reintroduced the Consumer Overdraft Protection Fair Practices Act , H.R. 946 , and held hearings in my Subcommittee and in the Full Committee on this issue. When the agencies issued the joint proposed rule on overdraft protection, I wrote a comment letter with Chairman Frank urging them to strengthen the proposed rule to include the provisions of my bill. Specifically, we urged the regulators to include overdraft in the Truth in Lending Act, to mandate that consumers choose to participate in overdraft programs before they are put in those programs, to prohibit manipulation of deposits and withdrawals so as to generate overdrafts, and to require notice at ATMs or Point of Sale before the customer overdrafts, wherever possible.