Congress Is Targeting Overdraft Fees
Congress is once again targeting banking overdraft charges which earned U.S. financial institutions $32 billion in additional fee revenue in 2012. This was an increase of $400 million from 2011. Reps. Carolyn Maloney, D-N.Y., and Maxine Waters, D-Calif., introduced a bill to limit the cost of overdraft fees. The bill specifically targets practices which are likely to result in customers overdrawing their accounts.
The Overdraft Protection Act would limit overdraft coverage fees in various ways. Key provisions of the bill include:
- A depository institution is prohibited from charging more than one overdraft coverage fee in any single calendar month, and not more than 6 overdraft coverage fees in any single calendar year.
- The amount of any overdraft coverage fee shall be reasonable and proportional to the amount of the overdraft.
- In order to minimize overdraft coverage fees charged to consumers, each depository institution shall post transactions with respect to transaction accounts in such a manner that the consumer does not incur avoidable overdraft coverage fees.
- No depository institution may charge an overdraft coverage fee on any category of transaction, if the overdraft results solely from a debit hold amount placed on a transaction account that exceeds the actual dollar amount of the transaction.
A number of these provisions address many of the techniques financial institutions use to make their money. It is common practice for banks to clear debits from the highest dollar amount to the lowest. This results in a mortgage payment being cleared but then having five smaller amounts like buying coffee and getting gas each incurring overdraft fees.
