WASHINGTON–Rep. Carolyn Maloney (D-NY) has again introduced legislation to cap overdraft fees. Maloney, who has introduced similar legislation in each Congress since 2005, has again submitted the Overdraft Protection Act of 2019.
“Financial institutions have increasingly used overdraft ‘protection’ plans in a way that is deceptive and unfair to consumers, despite a Federal Reserve Rule that requires financial institutions to obtain consumers’ consent to opt into overdraft coverage,” said Maloney, who spoke last week to NAFCU’s Congressional Caucus.
“This problem is significant. The FDIC reports that the vast majority of large banks enroll consumers automatically in overdraft plans, charge an average of $35 per overdraft, and manipulate the order transactions to post in a way that maximizes overdraft.”
In again submitting the bill, Maloney pointed to a CFPB study in 2014 that found the majority of debit card overdraft fees are incurred on transactions of $24 or less, and that the majority of overdrafts are repaid within three days. Put in lending terms, if a consumer borrowed $24 for three days and paid the median overdraft fee of $34, such a loan would carry a 17,000% annual percentage rate.
The Benefits
According to Maloney, the Overdraft Protection Act would help protect consumers by:
- Requiring overdraft fees to be reasonable and proportional
- Limiting overdrafts to one per month and six per year
- Codifying the opt-in provisions that the Fed promulgated, requiring that consumers opt-in to overdraft coverage
- Prohibiting institutions from manipulating the order of transactions to maximize overdraft fees
- Adding additional disclosures to consumers about overdraft coverage programs