Dodd's Overdraft Bill Would Save Consumers Lots of Money
As we’ve blogged about before, banks’ overdraft policies are crazy unfair. Banks are projected to drain as much as $38.5 billion from consumers this year by charging them so-called overdraft fees. We’ve heard stories from AFFIL members who have been charged hundreds of dollars in overdraft fees per day because they slipped into the red by a few dollars.
Here’s how overdraft loans work. Banks charge a fee – usually around $34 – each time you make a purchase with a balance below $0. If you make several purchases, even if they are only for a few bucks here and there, you can end up paying multiple fees and hundreds of dollars.
Senator Dodd’s bill, S. 1799, would put a stop to this in a big way, by allowing banks to charge only one fee per month and six fees per year. We’ve heard from consumers who’ve been charged more than six fees in one day before – so this would really be a drastic improvement!
This isn’t the government’s first attempt to fix overdraft loans. The Federal Reserve will come out with some regulations in November, and we’re hopeful that they will require banks to get consumers’ affirmative consent before enrolling them in overdraft “protection.” The Dodd bill would also require such consent, and includes even more protections such as those explained above. CU’s Daily Dollar explains what else the bill would do:
- Banks will only be allowed to charge consumers who Opt-In, one fee per month with a maximum of six per year.
- Fees must be reasonable and proportional to the costs of processing the overdraft.
- Consumers can choose the method (text, email, letter) used to notify them that they have overdrafted.
- Consumers will be given notice at the ATM and a chance to cancel if they are about to overdraw their account.
Other important protections found in the Senate bill include restricting banks from manipulating the order of transactions to maximize fees, prohibiting fees if the overdraft was cause by a debit hold, and adding more up front disclosures about the fees on statements and in marketing materials.
Representative Carolyn Maloney has also been working for overdraft reform for years. You can watch Rep. Maloney talk about this issue in Karney Hatch’s fun documentary, Overdrawn! See the trailer and read more about overdraft loans here.