Lawmakers Renew Push to Further Restrict Overdraft, Call for Prepaid Study (April 15, 2013)
Concerned about reports that suggest checking account overdraft fees are on the rise again despite regulatory efforts to curb them, a group of lawmakers led by U.S. Rep. Carolyn Maloney (D-N.Y.) recently re-introduced a bill to further restrict bank overdraft fees and launch an investigation into prepaid card overdraft protection programs. The Overdraft Protection Act of 2013, which Maloney has introduced during each of the past several years, previously did not advance past committee discussions, but Maloney says new data show financial institutions’ overdraft protection products are “deceptive and unfair” to consumers.
Moebs Services Inc., a Lake Bluff, Ill.-based consulting firm, on March 25 said the results of its independent study of 2,700 U.S. financial institutions suggest overdraft revenue in 2012 increased 1.3 percent to $32 billion from $31.6 billion in 2011, after declining for several quarters following regulatory changes. Moebs’ data show about 38 million, or 26 percent of 134 million checking account holders are “frequent” users of overdraft protection and banks charge an average fee of $30 per overdraft.
New Federal Reserve rules effective July 1, 2010, require that consumers opt in to receive overdraft protection. Maloney’s bill would require overdraft fees to be “reasonable and proportional” and limited to no more than one per calendar month and no more than six per calendar year. The bill also calls for the Consumer Financial Protection Bureau to conduct a study of prepaid card overdraft fees within a year of the law’s enactment. If the study reveals “abusive” prepaid card practices, any new bank account overdraft protection law passed would be applied to prepaid cards as well. Some consumer groups previously have urged the CFPB to ban overdraft fees or any form of credit on prepaid cards.
The American Bankers Association opposes the proposed legislation. “Overdraft protection is a service customers freely elect to have, and it provides peace of mind to know your payments will be covered,” an ABA spokesperson tells Paybefore. “Customers know the fee in advance and can opt out of overdraft protection at any time.”
