Rep. Maloney reintroduces Overdraft Protection Act

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U.S. Rep. Carolyn Maloney (D-NY) reintroduced this week legislation designed to crack down on predatory overdraft fees.

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Maloneyʻs bill, the Overdraft Protection Act of 2021, would establish fair and transparent practices for overdraft coverage programs.

Specifically, the Overdraft Protection Act of 2021 would require that fees be “reasonable and proportional” to the cost of processing these transactions and the amount of the overdraft. Further, it would prevent institutions from re-ordering transactions to artificially increase their fees. Also, it would limit the number of fees they can charge to 1 per month and 6 per year. In addition, it would require that consumers opt-in to overdraft programs in the first place as opposed to being automatically enrolled in them.

Finally, it seeks to improve transparency and disclosures and prohibit charging overdraft fees for “debit holds” that exceed actual transaction amounts.

“Overdraft fees are predatory and hit hardest those who can least afford them — cash-strapped hardworking Americans and college students who are struggling to pay their bills, keep a roof over their heads, and food on the table,” Maloney said. “Making matters worse, even during the pandemic – when our country and the world was in the throes of both health and economic crises, banks charged billions of dollars in overdraft fees. The Consumer Financial Protection Bureau found that the average consumer pays a 17,000 percent interest rate by overdrafting their account.”

According to an S&P Global Market Intelligence report, large banks collected $8.8 billion in overdraft fees alone and reported more than $147 billion in net income in 2020.

The legislation has been endorsed by several organizations, including Americans for Financial Reform, Center for Responsible Lending, Consumer Action, Consumer Reports, National Consumer Law Center, U.S. PIRG, The Leadership Conference on Civil and Human Rights, and Consumer Federation of America.

“Even after public outcry over the years, big banks have made it common practice to charge about $35 for overdraft fees, sometimes three to six times a day. That can add up to more than $200 in just one day,” Mike Litt, U.S. PIRG’s consumer campaign director, said. “Financial institutions continue to rake in tens of billions of dollars a year from these overly punitive fees, which mostly penalize customers with the least money to lose. The Overdraft Protection Act would provide consumers needed relief from these unfair charges.”

The Consumer Bankers Association voiced its opposition to the bill.

“Many customers who choose to participate in an overdraft program view it as a valuable service that enables them to make purchases for everyday necessities. Restricting access to overdraft, as this legislation calls for, would only drive consumers to predatory payday lenders or pawn shops – neither of which provide the same safety and soundness as well-regulated and well-supervised banks,” CBA President and CEO Richard Hunt said.

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