By Katie Rogers, Medill News Service for Marketwatch on 11/17/09
WASHINGTON — Dissatisfied with last week’s move by the Federal Reserve to curb high overdraft fees to consumers, members of Congress stepped in Tuesday to tout legislation they think will provide further financial relief.
Different from the Fed’s new rule, which would ban banks from charging overdraft fees unless consumers enroll in overdraft protection programs, the Senate bill would limit the number of times a consumer could incur overdraft fees to once a month to a maximum of six times per year. The fees, which now can cost consumers upwards of $35 per each transaction putting an account in the red, would then also have to be proportional to the purchase.
The bill – its’ official name is the Fairness and Accountability in Receiving Overdraft Coverage Act — drew support from Sen. Chris Dodd, D-Conn., and co-sponsors on Capitol Hill. The bill, drafted by leaders of the Committee on Banking, Housing and Urban Affairs,would also prevent banks from re-sorting account purchases, so that transactions would be arranged in purchase order, not in price order.
That would mean no $140 fee for a small overdraft, which happened when Mario Livieri wrote a check overdrawing his account by $2.17. Livieri, a retired business owner from Connecticut, said being aware as a consumer is important, but “I also know you don’t get anywhere in the world of business by treating your customers unfairly.”
Financial regulators, Dodd said, have historically done little “while consumers were taken advantage of by these misleading and unfair overdraft programs.” Regulators have known about “outrageous, skyrocketing” fees for years, he added.
John P. Carey, chief administrative officer of Citigroup North America Consumer Banking, is wary of the bill, saying in his statement that one alternative for banks is to simply deny potential overdraws from happening, a practice he said is long-standing at Citibank. He added that overdraft services are a useful product for consumers, especially for check-writing consumers.
Dodd’s bill, in its current form, focuses mainly on ATM and debit card charges; a similar bill, introduced by Sen. Carolyn Maloney, D-N.Y., late last month, includes checks.
“We suggest that if the bill is attempting to limit “continuous overdraft” fees for a single overdraft, the legislation be focused to specifically address that practice,” Carey said.
Jean Ann Fox, director of financial services for the Consumer Federation of America, called overdraft loans “dangerous, high-cost loans” that often impact consumers least able to cover the fees.
Dodd took the hearing as an opportunity to rally support around creation of the proposed Consumer Financial Protection Agency, which could expedite changes proposed by the bill at a faster rate.
“This cries out for a different process,” Dodd said. “[CFPA] allows for an agency to watch out for what happens to the Mr. Livieris of this world.”
Sen. David Vitter, R-La., expressed skepticism that the bill in its current form would be a positive change for consumers.
“It’s an important topic and I’m sure there are abuses in this area,” Vitter said. “I’m very concerned, however, that, as Congress often does, we’re going to push the pendulum to the other extreme and create problems.”
Vitter added that the costs from a law severely restricting overdraft fees would shift costs from less responsible consumers to the entire class of consumers, “including those who act more responsibly.”
