Maloney bill would protect Consumers from so-called Overdraft “Protection” plans

WASHINGTON, DC – Rep. Carolyn Maloney (D-NY), senior member of the House Financial Services Committee, along with 46 cosponsors, today introduced the “Overdraft Protection Act” which would require a consumer’s affirmative opt-in to overdraft plans with clear disclosure of coverage and fees, require overdraft fees be “reasonable and proportional” to the cost of the transaction, limit the quantity of fees that can be charged to one per month and six per year, improve notice to consumers when an overdraft is incurred, and ban the manipulation of transaction posting order in a way that maximizes fees paid to banks.

“With the rise of debit cards and the constant presence of swipe-card terminals to pay for everything from a tank of gas to a candy bar, it’s easier than ever to overdraw an account and incur an overdraft fee,” Maloney said. “That’s how a $5 cup of coffee can become a $35 cup of coffee faster than you can say ‘overdrawn’!  Some institutions—including Citibank and Bank of America—have responded to consumer outrage over these fees by implementing a policy of denying debit card transactions that would overdraw an account, and I applaud them for their responsiveness.

“The Federal Reserve opt-in rule for debit card overdrafts has been in effect since August, 2010.  But it is quite clear more needs to be done in the area of consumer disclosures and to help consumers avoid multiple overdrafts,” Maloney said. “That’s why my bill expands the opt-in requirement to paper checks, ATMs, and recurring monthly payments-- and also increases disclosure to consumers when an overdraft occurs, limits the fees’ price and frequency, and bans the manipulation of transactions."

The Overdraft Protection Act:

•     Requires consumer consent before banks can permit overdraft fees to paper checks, automated clearinghouse (ACH) charges and debit card swipe-terminal transactions on consumer accounts, and defines overdraft fees as finance charges subject to the Truth in Lending Act disclosures.  Current Federal Reserve rules require opt-in to overdraft fees only for debit card transactions.
 
•     Prohibits banks from manipulating the sequence in which checks and other debits are posted if it causes more overdrafts and maximizes fees paid to banks.
 
•     Requires that fees be ‘reasonable and proportional’ to the amount of the overdraft.

•    Caps the number of fees that can be charged at one per month and six per year.

•    Enhances disclosures to consumers both at the point of opt-in (disclosing alternatives to overdraft protection, including linked accounts or lines of credit) and when an overdraft fee is charged (if consumers choose to opt in).

•    Requires the Consumer Finance Protection Bureau to study prepaid debit card overdraft fees and grants rulemaking authority over those fees to CFPB.

BACKGROUND:

In February, 2012, the CFPB opened an investigation into how banks levy overdraft fees on consumers.

The growth in debit cards has been substantial; debit card transaction volume surpassed credit cards in 2006. Financial analysts Moebs Services estimates that overdraft fee income totaled $31.6 billion in 2011, with debit card share still climbing, to 43% in 2011 (from 39% in 2010).

COSPONSORS OF THE
OVERDRAFT PROTECTION ACT:

Barney Frank (MA-04)           
Michael Capuano (MA-08)
Keith Ellison (MN-05)  
Luis Gutierrez (IL-04)
James P. Moran (VA-08)
Jesse Jackson Jr (IL-02)
Laura Richardson (CA-37)     
Chris Van Hollen (MD-08)      
Jose Serrano (NY-16)            
David Cicilline (RI-01)
John Dingell (MI-15)                           
Brad Miller (NC-13)                            
Charles Rangel (NY-15)
Judy Chu (CA-32)      
Jan Schakowsky (IL-09)
Raul Grijalva (AZ-07)
Earl Blumenauer (OR-03)
Andre Carson (IN-07)             
Janice Hahn (CA-36)                          
Marcy Kaptur (OH-09)                                   
Jerrold Nadler (NY-08)
John Conyers (MI-14)
Bennie Thompson (MS-02)
Corrine Brown (FL-03)
Elijah Cummings (MD-07)
Anna Eshoo (CA-14)
Charles Gonzalez (TX-20)
Eleanor Holmes Norton (DC)
Barbara Lee (CA-09)
Rosa DeLauro (CT-03)
Frederica Wilson (FL-17)
Loretta Sanchez (CA-47)
Lynn Woolsey (CA-06)
Nita Lowey (NY-18)
Ed Towns (NY-10)
Maxine Waters (CA-35)
Paul Tonko (NY-21)
Bobby Rush (IL-1)
Gary Ackerman (NY-05)
Maurice Hinchey (NY-22)
Fortney "Pete" Stark (CA-13)
Rush Holt (NJ-12)
Frank Pallone (NJ-06)
Niki Tsongas (MA-05)
Xavier Becerra (CA-31)
Karen Bass (CA-33)