Bail out consumers from high bank overdraft fees

By CAROLYN B. MALONEY

Who in their right mind would want to pay an extra $27 for a $2 cup of coffee? Probably not many people, especially in these tough economic times.

But that’s what many of us end up paying for that cup of coffee or other small purchases when we overdraw our checking account and incur an overdraft fee.

According to an FDIC study, most banks either require “overdraft protection” or automatically sign you up for an overdraft program. Every time you overdraw your account, you incur an overdraft fee — whether you realized you had this “protection” or not.

A silent killer

The average overdraft fee is a whopping $27. Consumers are finding that the purchase of even a couple of small dollar items throughout the course of the day can trigger snowballing bank fees and an avalanche of debt. Because most customers are no longer warned at the checkout when they have a zero balance, many people don’t even realize they’ve overdrawn their account — or incurred an overdraft fee — until they get their bank statement or check their balance.

In 2007 alone, banks and credit unions collected $17.5 billion from overdraft fees, according to the nonprofit Center for Responsible Lending (CRL). CRL has also found that the overwhelming majority of customers, 80 percent, would prefer that their debit card transaction simply be denied rather than covered for a fee.

Overdraft programs aren’t necessarily a bad thing. Overdraft programs that are linked to a savings account or line of credit, for example, can be helpful. However, too many bank customers are being automatically enrolled into more expensive overdraft programs.

Consumers deserve control over their finances, especially in these tough times.

Banks should be required to get their customers’ permission before signing them up for overdraft programs. This fairer, “opt-in” requirement is one of several proposed changes to overdraft practices that banking regulators at the Federal Reserve are considering making.

Legislation proposed

On the legislative front, I have reintroduced the “Consumer Overdraft Protection Fair Practices Act” (H.R. 1456) in the U.S. Congress, which would require notice to customers at the ATM or point-of-sale terminal when a purchase is about to trigger an overdraft — and would give consumers at the transaction point a choice of whether to accept or reject the overdraft service and associated fee.

My bill would also require banks to get their customers’ permission before signing them up for an overdraft program, and it would prohibit banks from manipulating the sequence in which checks and other debits are posted if it causes more overdrafts and maximizes fees.

Congress has already held a hearing on my bill, and with the strong support for helping consumers in this economic environment, I look forward to passing it and bringing millions of Americans some much-needed relief from unfair bank fees.

X Rep. Carolyn B. Maloney, a New York Democrat, is chair of the Joint Economic Committee and a senior member of the House Financial Services Committee. McClatchy-Tribune Information Services.