New Report Shows Urgent Need for Maloney's Overdraft Protection Act

Press Release

A new report from Pew Charitable Trusts highlights the urgent need for the Overdraft Protection Act (H.R. 1261), a bill introduced by Congresswoman Carolyn Maloney (NY-12) to protect consumers from excessive overdraft fees. The new report shows that a quarter of the nation's financial institutions allow consumers to overdraw their accounts using automatic teller machines and charge excessive fees as a penalty. Half of financial institutions will reorder a consumer's transactions to unfairly generate multiple overdraft fees. Both problems would be addressed by Maloney's Overdraft Protection Act.

"The Pew report shows that a few financial institutions have voluntarily improved their overdraft policies, but far too many continue to charge excessive and abusive fees," said Maloney. "According to the new report consumers continue to be ripped off and the $35 cup of coffee is still around. That's because even when a customer has enough money to cover a purchase in their checking account, half of all financial institutions change the order of transactions, just to generate additional fees. There ought to be a law against this, and that's why I introduced the Overdraft Protection Act."

Maloney introduced the Overdraft Protection Act in 2012 and reintroduced the legislation in March of 2013. The bill:

Requires consumer consent before financial institutions can permit overdraft fees to paper checks, automated clearinghouse (ACH) charges and debit card swipe-terminal transactions on consumer accounts, and defines overdraft fees as finance charges subject to the Truth in Lending Act disclosures. Current Federal Reserve rules require opt-in to overdraft fees only for debit card transactions.

Prohibits financial institutions from manipulating the sequence in which checks and other debits are posted if it causes more overdrafts and maximizes fees paid to financial institutions.

Requires that fees be "reasonable and proportional' to the amount of the overdraft.

Caps the number of fees that can be charged at one per month and six per year.

Enhances disclosures to consumers both at the point of opt-in (disclosing alternatives to overdraft protection, including linked accounts or lines of credit) and when an overdraft fee is charged (if consumers choose to opt in).

Requires the Consumer Finance Protection Bureau to study prepaid debit card overdraft fees and grants rulemaking authority over those fees to CFPB.

The Overdraft Protection Act would build on reforms established by Maloney's Credit Card Accountability Responsibility and Disclosure Act which virtually eliminated overlimit fees associated with credit cards. The CARD Act requires consumers to opt-in to allow card issuers to process overlimit transactions and requires that consumers be notified of their right to revoke overlimit transactions processing whenever an overlimit fee is assessed. The CARD act also limited the number of overlimit fees to one per billing statement.

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