Officials Propose Bill to Stop Overdraft Fees

Montgomery, ALThe news probably could not come soon enough for people who have been victimized by excessive bank overdraft fees. Senators are considering a bill that would put limits on bank overdraft fees, preventing the banks from making money off excessive bank fees.

The issue is that consumers say they have been forced into overdraft protection by bank policies and practices that are unethical. These include automatic enrollment in overdraft protection, reordering transactions so the maximum number of overdraft transaction fees can be charged and posting deposits to accounts after withdrawals are taken from the account, even if the deposit was made prior to the withdrawal.

As a result of these practices, banks have made a lot of money. According to The New York Times (October 21, 2009), the banks are expected to make $27 billion this year through overdraft fees on checking accounts. Meanwhile, a study whose results were published in the Birmingham Business Journal (October 21, 2009) found that bankers in Alabama paid approximately $380 million in overdraft fees in 2008.

The article notes that the national average is $343 in overdraft fees per household for people with a checking account in 2008.

Senator Christopher J. Dodd has proposed a bill that would limit the number of overdraft fees charged to one per month and would force banks to obtain consumers' permission before covering purchases that would push the account into overdraft. The fees would also have to be proportional to the cost of processing the overdraft and would cap the number of overdrafts charged at six per year.

Consumer protection groups, including the Center for Responsible Lending, the Consumer Federation of America, Consumers Union, National Consumer Law Center and U.S. PIRG say they are in support of Senator Dodd's bill. In a joint statement the groups applauded the "Fairness and Accountability in Receiving Overdraft Coverage Act" (FAIR Act), saying, "We are pleased that this bill would put long-overdue brakes on abusive overdraft practices by banks and credit unions, practices that make holding on to and managing the money in their checking accounts difficult for many Americans."

Consumer anger over the banks using overdraft fees has led to lawsuits being filed against some of the country's largest banks. These include Bank of America, Wachovia, U.S. Bank, JPMorgan Chase and Citibank. The lawsuits allege that the banks have abusive overdraft fee policies, according to the South Florida Business Journal (October 20, 2009).

The lawsuits seek restitution, punitive damages and an order that banks stop from engaging in "wrongful, unfair and unconscionable practices." The lawsuits also seek class action status.