On May 9, 2012, Rep. Carolyn Maloney (D-NY), senior member of the House of Financial Services Committee, along with 46 cosponsors, introduced the “Overdraft Protection Act” which would amend the manner in which overdraft fees are collected by changing the following:
- Banks would have to obtain a customer “affirmative opt-in “ to overdraft plans with clear disclosure of coverage and fee
- Require overdraft fees be “reasonable and proportional” to the cost of the transaction
- Limit the quantity of fees that can be charged to one per month and six per year(!!!)
- Improve notice to consumers when an overdraft is incurred
- Ban the manipulation of transaction posting order in a way that maximizes fees paid to banks.
Representative Maloney stated that with the frequent use of debit cards it’s easier than ever to overdraw an account, thus , occur fees. She used an analogy that a $5 dollar cup of coffee can be inadvertently become a $35 dollar cup of coffee because of the ease in which transactions can occur electronically.
This bill would be an expansion of the Federal Reserve‘s “opt in rule” that has been in effect since 2010, to include paper checks, ATM’s and recurring monthly payments. As stated above, it also requires additional disclosures and, more importantly, limits the cost and frequency of overdraft fees.
The expansion of regulation into consumer banking has become confusing and burdensome at best; however, this may be one area where someone in congress (gasp) may have a point. This is a textbook example where technology has far outpaced the regulations on the books. It is indeed easy to swipe your debit card for just about anything now and truly not be aware of a potential overdraft situation. The “opt in” safeguard in these times makes a good deal of sense. That being said, limitations on overdraft fees over the course of an entire year may be a bit extreme, as it is easy to speculate that some would take advantage of such a limitation if they knew there was a cap on what they would be charged.
To read Representative Maloney’s release, click here.