WASHINGTON–House Democrats are again taking aim at overdraft fees.
Rep. Carolyn Maloney (D-NY) has reintroduced legislation that seeks to put limits on the overdraft fees financial institutions can charge, making it illegal to assess more than one charge per month.
The legislation is similar to that Maloney has sponsored in previous years in that it would also require overdraft fees are proportional to the amount of the overdraft and the cost to the financial institution for providing coverage for the transaction.
"Overdraft fees disproportionately harm lower-income residents, often minorities," Maloney, who represents parts of Manhattan, Brooklyn and Queens, told CNN Business. "If you want to address inequality, cutting out unfair, deceptive and abusive fees is a fair thing to do."
Among other provisions, Maloney's bill would prevent banks from charging more than six overdraft fees per year, CNN reported. It would also prohibit lenders from processing transactions in order to maximize overdraft and non-sufficient fund fees.
According to FDIC data drawn only from banks of more than $1 billion in assets, banks take in approximately $11 billion worth of overdraft and related fees when consumer accounts go negative, according to FDIC stats on banks with more than $1 billion in assets.
A 2017 report published by the Consumer Financial Protection Bureau found that just 9% of all accounts pay a staggering 79% of all overdraft and non-sufficient fund fees, CNN noted.
Analysts told CNN the odds the legislation makes it through Congress are long.
"We see it unlikely that overdraft legislation is enacted into law, but its advancement will influence and pressure Biden-appointed regulators to act," analysts at Raymond James wrote in a recent note to clients.
Potential to Backfire?
CNN also noted that some are warning that restrictions could backfire by causing unintended consequences. Researchers at the New York Federal Reserve wrote in a recent paper that a cap on overdraft fees would make banks less willing to open accounts from depositors with low debit scores, who get dinged when customers don't pay overdraft fees.
A better path, the NY Fed researchers wrote, would be promoting competition and transparency.
As CUToday.info reported here, among banks, thrifts and credit unions, it was only credit unions that posted an increase in service charge revenue during the first quarter of this year, and that was due primarily to overdraft fees, according to Moebs Services.