Banks could not charge overdraft fees on cash-machine and debit-card transactions unless customers have opted in to an overdraft protection program, under a bill introduced in the U.S. Senate on Monday.
Adding to Congress’ fast-growing list of proposed new rules for banks, Democratic Senator Christopher Dodd offered the overdraft bill, with three other senior lawmakers, targeting controversial fees some banks are already backing away from.
“Consumers are being hit with hundreds of dollars in penalties for overdrawing on their account by just a few dollars. Banks should not be trying to bolster their profits at the expense of their customers,” said Dodd in a statement.
Democratic Rep. Carolyn Maloney has introduced a bill to rein in overdraft fees in the House of Representatives.
Major banks that have recently announced voluntary caps or other curbs on overdraft fees include Bank of America Corp, JPMorgan Chase and Wells Fargo & Co.
Dodd’s bill would require that customers “opt in” to overdraft coverage programs on cash machine and debit card transactions, while limiting banks to charging a maximum of one overdraft fee per month, and no more than six fees per year.
Regions Financial Corp, BB&T Corp and U.S. Bancorp also have recently reined in the fees.
Joining Dodd in introducing the bill were three other Democratic senators: Jack Reed, Sherrod Brown and Charles Schumer. All are senior banking committee members.
A Federal Deposit Insurance Corp study in 2008 found that banks in recent years started hitting customers with more and higher overdraft fees, ranging from $10 to $38 per incident.
About 75 percent of banks in the FDIC study enrolled customers automatically in overdraft programs, while allowing them to opt out if they were aware of it and wanted to.
The Senate bill “will give consumers more choices and prohibit banks from levying excessive, hidden fees on individuals and families who are struggling to keep their homes and jobs,” Reed said in a statement.
The bill would bar banks from punishing those who reject overdraft coverage by, for instance, denying them favorable terms on other services. Further, it would “require fee amounts be proportional to the cost of processing the overdraft.”
In addition, banks could not manipulate the order in which they process transactions to gain extra fees, while customers would have to be notified when they overdraw at a cash machine or teller and be allowed to cancel the transaction.
Congress is debating a wide range of new rules for banks following the worst financial crisis in generations. President Barack Obama has proposed many of the changes as part of a program to tighten bank and capital market oversight.
The House Financial Services Committee on Tuesday will meet to work on a bill that would create a U.S. Consumer Financial Protection Agency, which supporters say is needed to police issues like overdraft fees, mortgages and credit cards.
Opponents of the proposed CFPA, including a host of banking industry lobbyists working Capitol Hill, have attacked it as an unneeded and costly new layer of government bureaucracy.
Analysts say the proposed agency, along with other parts of the administration’s wide-ranging financial regulation reform program, would threaten banks’ profits.
The CFPA bill, as drafted, could expose banks to increased state regulation. Large banks’ income from over-the-counter derivatives market operations is also threatened by legislation approved last week by the committee. Debate resumes this week.
“The same special interests that brought down the economy are now trying to bring down the CFPA,” said Susan Weinstock, director of financial reform for the Consumer Federation of America, a consumer rights advocacy group.
“Americans have paid enough for the abuses of big banks. Taxpayer dollars bailed them out because of their recklessness, but consumers still have to pay when they are hit with outrageous overdraft fees,” Weinstock said.
