WASHINGTON, D.C. – Today, U.S. Senator Sherrod Brown (D-OH) hosted a news conference call as he leads legislation with U.S. Senator Cory Booker (D-NJ) to crack down on exploitative overdraft fees that banks charge consumers when they make a purchase or pay a bill but don’t have sufficient funds in their account.
Banks offer overdraft services to allow account holders to make purchases or pay a bill even if they don't have sufficient funds in their account, while charging a fee for the service – on average $35. Many banks even process transactions not in the order they occur, but in the order that generates the highest fees. These fees disproportionately fall on customers who are least able to afford them, especially workers living paycheck to paycheck.
“These fees are a tax on paychecks that are already stretched thin,” said Brown. “Banks should be set up to serve customers – not scam them to pad their CEOs’ bottom-lines.”
Brown’s bill, the Stop Overdraft Profiteering Act of 2018 would:
- Mandate that banks and depository institutions post transactions in a manner that minimizes overdraft and nonsufficient fund fees.
- Prohibit overdraft fees on debit card transactions and ATM withdrawals.
- Prohibit financial institutions from charging more than one overdraft fee per month and no more than six overdraft fees in any single calendar year for check and recurring bill payment overdrafts.
- Limit check and recurring bill payment overdrafts fees to an amount that is reasonable and proportional to the financial institution’s costs in providing the overdraft coverage.
- Mandate a three-day waiting period between when an individual opens a new account and when a financial institution may offer overdraft protection.
- Increase other consumer disclosures related to overdraft coverage programs.
In 2010, the Federal Reserve implemented overdraft regulations that, among other things, required that consumers affirmatively opt-in to overdraft services. However, survey data and anecdotal evidence suggest that the opt-in requirement is being sidestepped by financial institutions marketing overdraft coverage in a confusing and deceptive manner. A 2014 study by Pew found that across all banks, more than half of the people who overdrew their checking accounts and paid a fee in the past year could not recall consenting to the overdraft service.
Overdraft fees have emerged as a major source of revenue for banks. Last year alone, three of the largest banks in the country collected over $5 billion in overdraft fees.