CLEVELAND, OH— Today, U.S. Sen. Sherrod Brown (D-OH), Chair of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection, alerted Ohioans to predatory “overdraft” practices by banks that lead customers to overdraw their checking accounts, causing them to be charged exorbitant penalties. Brown announced new legislation that would protect Ohioans from these practices.

“Banks should play by the rules instead of purposefully ‘reordering’ their costumers’ debit card transactions so that they profit while consumers rack up costly penalties,” Brown said. “My bill would put a stop to this by empowering the Consumer Financial Protection Bureau to crack down on banks that employ predatory practices. It also would allow the CFPB to establish fair guidelines to protect consumers and the banks and credit unions that play fair with their customers.” 

According to a recent study by the Consumer Financial Protection Bureau (CFPB), some institutions purposefully “reorder” their customers’ debit card transactions in order to maximize their profits at the expense of consumers. Instead of subtracting money from your account in the order that you made purchases for the day, banks will subtract larger purchases first, leading your account to reach zero more quickly, making it more likely that you will be charged multiple times for purchases in the negative. Every time a transaction in the negative occurs, a consumer is charged on average a $34 penalty.

A Federal district court also recently came to the same conclusion—that financial institutions regularly reorder transactions from high-to-low, instead of low-to-high, exclusively to generate more fee revenue at the expense of the consumer. The two plaintiffs in that case incurred $143 in overdraft fees from a $49 overdraft, and $506 in fees for overdrawing $120. According to Pew’s Safe Checking in the Electronic Age Project, transaction reordering caused one plaintiff to incur four overdraft charges instead of just one – imposing an additional $66 in fees.

Reordering is confusing to consumers and has helped contribute to higher fees for the one in every five Americans who will overdraw their checking account this year. Specifically, Brown’s bill would crack down on these practices by:


  • Ensuring banks post transactions in an objective way that is clear to their customers; 


  • Giving the CFPB, headed by the newly-confirmed Richard Cordray, the authority to monitor banks’ overdrafting practices to deem if they are acting predatorily; and


  • Establishing fair guidelines to protect consumers now and in the future.


“Pew applauds Sen. Brown’s bill as it marks a turning point in the safety and transparency of the checking account as a household financial management tool,” said Susan Weinstock, director of Pew’s safe checking work. “For too long, financial institutions have been allowed to change the order that deposits and withdrawals are processed. This Act would restore safety to these accounts by preventing financial institutions from posting transactions in a way that maximizes overdraft fees.”


Brown’s bill would also direct the CFPB to provide a safe harbor from litigation for banks that play by the rules and follow the system the agency puts in place to ensure fair overdraft practices.


Joining Brown to help draw attention to these abuses was Francis Lesniak, a Northeast Ohio woman who overdrew her account by a total of only $5.60, but was charged $96 in penalties because her transactions were reordered.


Brown was also joined by David Rothstein, Project Director for Asset Building at Cleveland Saves, a program dedicated to helping Northeast Ohioans build their savings. Rothstein is also currently the Director of Resource Development and Public Affairs at the Neighborhood Housing Services (NHS) of Greater Cleveland and previously studied consumer issues and banking for Policy Matters Ohio. 


“Overdraft fees hit working families and seniors hard,” Rothstein said. “We are working with clients through financial capability training to help them budget and through our financial partners to find them the best products but overdraft fees are expensive, inconsistent, and jarring to a monthly budget. This Bill provides a sensible floor for overdraft policies.”


Brown chairs the Senate Banking Subcommittee on Financial Institutions and Consumer Protection and has long fought to protect Ohioans from abusive and predatory banking practices. Last week the U.S. Senate came to an agreement that avoided the “nuclear option” and allowed for a vote and confirmation of Cordray to lead the CFPB. Brown for two years continued to fight for the confirmation of his fellow Ohioan so that Cordray can concentrate fully on advocating for consumers and citizens at the CFPB.