House Dems set sights on overdraft fees

By Peter Schroeder - 05/09/12 03:30 PM ET

House Democrats are looking to crack down on overdraft fees, unveiling legislation that would limit when and how banks can charge people who try to spend more money than their accounts can handle.

Rep. Carolyn Maloney (D-N.Y.) has introduced the Overdraft Protection Act, arguing that consumers need more help avoiding the fees given the technological advancements in how payments are processed.

"With the rise of debit cards and the constant presence of swipe-card terminals to pay for everything from a tank of gas to a candy bar, it’s easier than ever to overdraw an account and incur an overdraft fee," she said Wednesday. "It is quite clear more needs to be done in the area of consumer disclosures and to help consumers avoid multiple overdrafts."

Thirty-eight Democrats have signed on to the measure, including top members of the House Financial Services Committee such as ranking member Rep. Barney Frank (D-Mass.).

Under the measure, banks would have to obtain consent before activating overdraft fees for paper checks, automated charges and debit card transactions — under existing rules, opt-in requirements apply only to debit card transactions.

Those fees would be limited to a "reasonable and proportional" amount of the actual overdraft, and banks would be prohibited from changing the sequence in which they process transactions in order to create more overdrafts, maximizing the fees paid.

Furthermore, an individual account holder could not be charged more than once a month for an overdraft fee, and no more than six times per year. And it would direct the Consumer Financial Protection Bureau (CFPB) to conduct a study on overdraft fees tied to prepaid debit cards, and grant it the authority to regulate those fees.

The legislation comes one day after The New York Times wrote an editorial calling for greater clarity and more consumer control over the fees.

"If the banks are playing by the rules, all customers should know that the easiest way to avoid overdraft fees is not to opt into the program," it wrote.

A new study from the Pew Charitable Trusts found that over half of those who were charged overdraft fees thought they had not agreed to accept the fees, and that the median fee charged was $35.