UPDATE: US Senators Take Aim At Bank Overdraft Fees
October 19 2009 - 6:04PM
Dow Jones News
U.S. banks, already under fire over credit-card fees and rate
increases, are now facing a challenge on another front: the
overdraft fees they charge customers who overdraw from their
accounts.
Five U.S. Senate Democrats, including Senate Banking Committee
Chairman Christopher Dodd (D., Conn.), on Monday introduced
legislation that would put sharp restrictions on the fees bank can
charge customers. Customers would have to opt-in to overdraft
protection, and banks would be limited on the size and frequency of
the fees they charge.
"Banks should not be trying to bolster their profits at the
expense of their customers," Dodd said in a statement.
In September, some of the nation's largest banks including Bank
of America Corp. (BAC), J.P. Morgan Chase & Co. (JPM) and Wells
Fargo & Co. (WFC), said they would roll back some overdraft
fees. But the proposed legislation takes a tougher stance by
requiring banks to impose overdraft fees that are "reasonable" and
"proportional" to the cost of processing the overdraft, while
placing limits on the number of fees that can be charged each month
and year.
"The Dodd bill goes much further," said Eric Halperin, director
of the Center for Responsible Lending. "It addresses both the costs
and the number of overdraft fees."
None of the banks' recent announcements so far have meaningfully
changed the number of times overdraft fees can be charged or
reduced the overall size of the fees, he said.
Meanwhile, the Federal Reserve is also considering rules that
could be finalized later this year that would, among other things,
require customers to opt-in to overdraft protection.
U.S. lawmakers have expressed increasing frustration that banks
and other financial firms, which benefited from the government's
intervention in the credit markets last year, are pushing more
aggressive consumer fees. A U.S. House panel is scheduled to
consider legislation this week that would move up by two months
strict new rules on credit cards.
"Taxpayers helped stabilize the financial services industry--big
banks should not return the favor by slamming consumers with
billions of dollars in overdraft fees," Sen. Sherrod Brown (D.,
Ohio) said in a statement.
A summary of the legislation said it would require customer
consent for enrollment in any overdraft program, and would prohibit
banks from discriminating against customers who opt out. Banks
would be limited to charging only one overdraft fee a month, and no
more than six a year, and the bill would mandate that fees be
proportional to the cost of processing an overdraft.
Dodd and Brown introduced the legislation along with Sens. Jack
Reed of Rhode Island, Charles Schumer of New York, and Oregon's
Jeff Merkley.
-By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273;
michael.crittenden@dowjones.com
(Jane J. Kim contributed to this article.)