Rep. Maloney Urges Consumer Protection from Overdraft Fees and Oversight of Cryptocurrency Industry
WASHINGTON, DC — At yesterday’s Financial Services Committee hearing titled “Oversight of Prudential Regulators: Ensuring the Safety, Soundness, Diversity, and Accountability of Depository Institutions,” Congresswoman Carolyn B. Maloney (D-NY), senior member of the committee and author of the Overdraft Protection Act of 2021, advocated for further consumer protection from predatory overdraft fees and oversight of the cryptocurrency industry.
During the hearing, Rep. Maloney stated, “I want to build on the bipartisan work of this committee in 2009 when we passed the CARD Act, the Cardholders’ Bill of Rights. According to the Consumer Financial Protection Bureau, this bill alone has saved consumer’s $16 billion per year. I have introduced the overdraft bill which would build on that work. The Consumer Financial Protection Bureau has found that overdraft fees cost our consumers over $15 billion in 2019 alone, and these fees disproportionately target and penalize low-income consumers.
While I am glad to see that some banks have taken some initiative by eliminating these fees or moving in that direction, it’s concerning to me that it’s taken this long; it’s piecemeal, and many banks still have yet to make any voluntary changes. I think there should be a uniform standard, that's why I have introduced the Overdraft Protection Act, which would crack down on predatory overdraft fees and would establish fair and transparent practices for overdraft coverage programs. This legislation passed out of this Committee in July and as I said builds on the Credit Card Bill of Rights.
She then asked Mr. Martin Gruenberg, Acting Chairman of the Federal Deposit Insurance Corporation (FDIC), “In 2010, when you were Vice Chair of the FDIC, the FDIC issued supervisory guidance on overdraft fees. In your opinion, how has the practice of overdraft fees changed over time?
Mr. Gruenberg replied, “Thank you Congresswoman. As you indicate, this is an issue which has gained a lot of attention. I think the banking industry has become increasingly attentive to it, and there has been some progress made as you indicated in terms of institutions reducing reliance on overdraft fees. I think from the FDIC’s perspective, the critical thing is in our examination process to ensure that banks which use overdraft fees are doing it in a transparent way, that consumers are fully informed, that banks are complying with all the regulatory requirements including the fact that consumers have to affirmatively opt-in to choose overdraft coverage. We have had issues that we’ve heard with overdraft and insufficient fund fees where institutions may not be giving adequate disclosure to ensure consumers simply understand the fees they are being charged, and in some cases, we’ve taken action in regard to it.
Rep. Maloney continued, “From your vantage point, are there instances where the FDIC might classify certain overdraft programs, such as those that reorder the sequence in which transactions are processed to maximize overdraft fee revenue for the bank to the detriment of consumers, as an unsafe or unsound banking practice?
Mr. Gruenberg responded, “That is depending on how the practice is being implemented; that is a possibility.”
Rep. Maloney then asked Mr. Michael Barr, Vice Chairman of Supervision of the Board of Governors of the Federal Reserve System, “Obviously, the explosion of the crypto platform FTX has been in the news. From your and the Fed’s vantage point, do these events have any impact to our regulated financial system and the safety and soundness of our banking system?
Mr. Barr replied, “Thank you Congresswoman, to date the recent crypto events have had some impact in the banking system but it’s been in the aggregate level relatively muted. The banking system in general has been cautious in its connection between banking and crypto related activity. There are some banks providing traditional banking services to the crypto sector, and so we are attentive to the risk that might pose. But from a systemic level we are not seeing currently a systemic risk from the crypto related activity. Of course, it had a devastating affect on the individuals effected, the consumers and investors in that space and that is really a difficult problem.
Rep. Maloney continued, “What’s your view of exposing our financial system to such volatile products which as you said can hurt consumers so considerably as they just did?”
Mr. Barr responded, “We need to be cautious and put in place appropriate guardrails so that if banks are engaged in crypto related activities those are done in a safe and sound manner, in a manner that protects consumers and investors.”
Rep. Maloney lastly asked, “Do you think crypto should be regulated?”
Mr. Barr replied, “Yes, I think regulators should use their existing authorities to do so. If Congress steps in this space, it is important that it strengthen oversight of this sector.” [DR1] [DR2]
You can watch the Congresswoman’s full exchange here.
Background
Congresswoman Maloney introduced H.R. 4277, the Overdraft Protection Act of 2021, last June. This legislation would:
- Require that fees be “reasonable and proportional” to the cost of processing these transactions and the amount of the overdraft;
- Prevent institutions from re-ordering transactions to artificially increase their fees;
- Limit the number of fees they can charge to 1 per month and 6 per year;
- Empower consumers by requiring that they proactively opt-in to overdraft programs in the first place – rather than automatically being enrolled;
- Improve transparency and disclosures; and
- Prohibit charging overdraft fees for “debit holds” that exceed actual transaction amounts, among other strong measures.
The Overdraft Protection Act builds on the progress made under Congresswoman Maloney’s Credit CARD Act of 2009, which saves consumers roughly $12 billion per year. A 2015 CFPB study estimated that this legislation saved consumers $16 billion dollars in the first years of its enactment.
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