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Dodd's Overdraft Bill Would Save Consumers Lots of Money

October 21, 2009

moneyAs 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.

(photo:  AMagill)

  1. Kim Forbes-Gayton permalink
    October 22, 2009 3:39 pm

    I have received one Overdraft fee too many and decided not to wait for the bank to answer my constant request for proportion or the option to opt out. So today, a letter went to my bank to cancel the overdraft protection on my checking account. I’ve had enough of the gouging and the waiting (with no success) for Bank of Albuquerque to address let alone, negotiate a mutually-beneficial solution to this! Their silence say it all: they don’t care!

  2. b corredera permalink
    October 26, 2009 1:58 pm

    Here is an earth shattering idea, try managing your money and guess what you won’t be charged anything. Dodd is clueless. He believes he can help the economy by making it cheaper for americans to run up debt. Overdraft fees are NOT designed to generate/welcome/encourage overdrafts. Need money cheaper? There are numerous ways to borrow for less.

  3. Jules permalink
    November 10, 2009 9:53 pm

    Wow – just like with the mortgage bailout, we are now going to draft bills for people who are too lazy to manage their checking accounts?? I believe it used to be bordering on criminal to “float” checks and overdraft your account, which by definition is having something presented or paid against an insufficient balance. Since people are too lazy to monitor their accounts and keep a ledger of their activity (hello – Quicken?????) it’s the banks’ fault when there’s no money to pay for their McDonalds??????? BTW, even if people “opt out” of the overdraft, guess what – you’ll be standing in walmart with a register full of crap and your card will be turned down. Will you bitch out your bank then, too? And, you’ll still get fees if checks or auto debits are presented for payment against an insufficient balance – grow up people!

  4. JO JO permalink
    December 7, 2009 8:50 pm

    so some jack ass stole my account and i canceld the account and the bank was supposed to stop all payments even eltronic ones. so here comes a drect deposit of my pay check and then it was gone there was 10 35$ over drafts and suprise the posted all payments for my old account that wasn mine and told me to deal. and who is the ones to mange there money the banks cant even mange with out barrowing money for the tax payers so there should be something done. i understand a fee but dang it is getting rediculas

  5. February 21, 2010 2:12 pm

    Rates are going up, and that means bonds will go down. Don’t need a bubble for that.

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