Congress Eyes Curbs on Bank Overdraft Fees

September 21, 2009

(ChattahBox)—Banks stand to gain about $38.5 billion in overdraft fees this year, and are becoming increasingly reliant on all types of fees, as they struggle to maintain profits during the recession. Democrats in Congress plan to curb the runaway overdraft fees that are charged to customers without their knowledge or consent when they overspend.

The fees can be onerous and many customers don’t even realize they have overdraft protection when using their debit cards, until they are hit with multiple fees of up to $35.00 for each overdraft transaction.

The banks’ gauging of its customers is even more outrageous, considering that many of the banks profiting from fees are also receiving federal bailout funds. Average overdraft fees at large banks have increased about 4 percent this year.

Sen. Christopher J. Dodd (D-Conn.) plans to introduce legislation that would give customers the option of refusing the overdraft loan at the point of purchase to avoid getting socked with hefty overdraft fees. If customers decline and then try to overspend, the transaction would be rejected.

According to the Washington Post, banks don’t notify customers of overdrafts or give them an option to cancel the transaction:

“Most banks automatically offer the loans to all account holders, according to a study by the Federal Deposit Insurance Corp. released last year. They also do not notify customers when an overdraft is about to occur, nor do they offer them a chance to cancel the transaction. Furthermore, many banks process transactions in ways that increase the number of overdraft charges, for example by debiting large transactions before small ones, exhausting available funds more quickly.”

The banks say it’s up to the customers to monitor their accounts and that they are offering a helpful service to their customers, to save them from the embarrassment of having a transaction declined.

That may be true, but lawmakers say bank customers need to be given a choice to decline the overdraft loan. The Federal Reserve has proposed a new rule to compel banks to sign up customers for overdraft programs, so that customers are not caught unawares with hefty overdraft fees.


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