[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]

                  THE OVERDRAFT PROTECTION ACT OF 2009



                               BEFORE THE


                     U.S. HOUSE OF REPRESENTATIVES


                             FIRST SESSION


                            OCTOBER 30, 2009


       Printed for the use of the Committee on Financial Services

                           Serial No. 111-89

55-815                    WASHINGTON : 2010
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                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York         PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois          EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina       RON PAUL, Texas
GARY L. ACKERMAN, New York           DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California             WALTER B. JONES, Jr., North 
GREGORY W. MEEKS, New York               Carolina
DENNIS MOORE, Kansas                 JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts    GARY G. MILLER, California
WM. LACY CLAY, Missouri                  Virginia
JOE BACA, California                 SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts      J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina          JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia                 RANDY NEUGEBAUER, Texas
AL GREEN, Texas                      TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri            PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois            JOHN CAMPBELL, California
GWEN MOORE, Wisconsin                ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire         MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota             KENNY MARCHANT, Texas
RON KLEIN, Florida                   THADDEUS G. McCOTTER, Michigan
CHARLES A. WILSON, Ohio              KEVIN McCARTHY, California
ED PERLMUTTER, Colorado              BILL POSEY, Florida
JOE DONNELLY, Indiana                LYNN JENKINS, Kansas
BILL FOSTER, Illinois                CHRISTOPHER LEE, New York
ANDRE CARSON, Indiana                ERIK PAULSEN, Minnesota
JACKIE SPEIER, California            LEONARD LANCE, New Jersey
JOHN ADLER, New Jersey
JIM HIMES, Connecticut

        Jeanne M. Roslanowick, Staff Director and Chief Counsel

                            C O N T E N T S

Hearing held on:
    October 30, 2009.............................................     1
    October 30, 2009.............................................    53

                        Friday, October 30, 2009

Blaine, Jim, President, North Carolina State Employees Credit 
  Union..........................................................    14
Bloom, Ellen, Director, Federal Policy and Washington Office, 
  Consumers Union................................................    17
Colley, Mark A., President and Chief Executive Officer, Tulsa 
  Postal & Community Federal Credit Union, on behalf of the 
  National Association of Federal Credit Unions (NAFCU)..........    19
Dollar, Dennis, Principal Partner, Dollar Associates, LLC........    16
Feddis, Nessa, Vice President and Senior Counsel, Center for 
  Regulatory Compliance, American Bankers Association (ABA)......     7
Fox, Jean Ann, Director, Financial Services, Consumer Federation 
  of America (CFA)...............................................     6
Halperin, Eric, Director, Washington Office, Center for 
  Responsible Lending............................................     9
Hunt, Richard, President, Consumer Bankers Association (CBA).....    21
Ireland, Oliver I., Partner, Morrison & Foerster LLP.............    13
Menzies, R. Michael S., Sr., President and Chief Executive 
  Officer, Easton Bank and Trust Company, on behalf of the 
  Independent Community Bankers of America (ICBA)................    22
Staatz, Rodney, President and Chief Executive Officer, State 
  Employees Credit Union of Maryland (SECU), on behalf of the 
  Credit Union National Association (CUNA).......................    11


Prepared statements:
    Blaine, Jim..................................................    54
    Bloom, Ellen.................................................    58
    Colley, Mark A...............................................    85
    Dollar, Dennis...............................................    99
    Feddis, Nessa................................................   105
    Fox, Jean Ann................................................   114
    Halperin, Eric...............................................   136
    Hunt, Richard................................................   150
    Ireland, Oliver I............................................   158
    Menzies, R. Michael S., Sr...................................   167
    Staatz, Rodney...............................................   176

                  THE OVERDRAFT PROTECTION ACT OF 2009


                        Friday, October 30, 2009

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 9:41 a.m., in 
room 2128, Rayburn House Office Building, Hon. Barney Frank 
[chairman of the committee] presiding.
    Members present: Representatives Frank, Maloney, Green, 
Cleaver, Ellison, Perlmutter, Himes; Bachus, Royce, and Posey.
    The Chairman. There is a very plausible reason that I am 
late: I am getting forgetful. And I am sorry. I got engrossed 
in something else. I apologize.
    You honor us by coming here on a Friday. I feel badly and I 
am sorry.
    We will begin with our opening statements. We will have 10 
minutes on each side. And I recognize the gentlewoman from New 
York, Mrs. Maloney, the main author of this legislation, and so 
many other consumer protections, for 5 minutes.
    Mrs. Maloney. Thank you so much, Mr. Chairman, for your 
support and leadership on this important issue. And thank you 
for having this hearing on H.R. 3904, the Overdraft Protection 
Act of 2009.
    The overdraft problem is significant and getting worse 
because the quantity of debit card transactions now exceeds the 
quantity of credit card transactions. Just yesterday, a 
headline in the American Banker Newspaper read, ``Dependence on 
debit is the new norm.''
    The Center for Responsible Lending has found that overdraft 
fees have increased 35 percent in the last 2 years, and they 
estimate that 27 million Americans overdrew their checking 
account more than 5 times in a 12-month period.
    From start to finish, the consumer is too often kept in the 
dark, not allowed to choose how he or she spends their own 
money. This bill brings sunshine and permission into the 
process, restricting deceptive practices and empowering 
consumers to manage their own lives and their own financial 
    Let me briefly explain the overdraft cycle. As a consumer 
opens an account, according to a study by the FDIC, most banks, 
75 percent of banks, automatically enroll them in an automated 
overdraft program which charges a fee from $10 to $38 for each 
overdraft and, sometimes, another fee if an account stays at a 
negative balance, even though the consumer does not even know 
it is in a negative balance.
    So what this bill does is give consumers more tools to 
better make their own decisions about how to manage their own 
money. Then, consumers begin to use their debit card just as 
they have advertised: for groceries, for gas, for a cup of 
coffee and movie tickets, to run a Sunday's worth of errands, 
and many people use their debit card at a point of sale half a 
dozen times or more. And because they were enrolled 
automatically in overdraft protection and are using ATMs or 
point-of-sale terminals, they don't or cannot tell if a 
transaction is about to drive them into a negative balance and 
they incur a fee.
    Consumers often do not know that they have even incurred 
overdraft fees until they get the bills, sometimes as much as 
$300 to $600 for overdraft fees for one weekend.
    What the consumer does not know, unless they keep very 
strict track of their balance after each and every transaction, 
is that they could have racked up half a dozen or more 
overdraft fees in just a single day. So that $5 cup of coffee, 
an extravagance in its own right, then turns into a $35 cup of 
coffee because of the overdraft fee.
    What is more, the consumer does not find out about the fee 
that was automatically charged until later, because the 
overwhelming majority of banks, 81 percent according to the 
FDIC, will allow an overdraft to occur at an ATM or point of 
sale but only notify the consumer after the transaction has 
been completed and the overdraft fee has been charged.
    Finally, the overdraft problem culminates when the 
transactions are posted to accounts back at the bank. You might 
think that the transactions would be posted in chronological 
order, but you would be wrong. They are usually posted by size, 
from the largest amount spent to the smallest, driving people 
into overdraft fees quicker, which means that the transaction 
fee has the effect of driving the account into a negative 
balance faster, and each smaller transaction that occurs while 
the account is in a negative balance incurs a new, separate 
overdraft fee.
    The FDIC study reports that 53.7 percent of large banks 
process overdraft fees in large-to-small fashion, therefore 
driving up the cost to the individual.
    The bill that Chairman Frank and Chairwoman Waters and I 
have introduced meets the overdraft problem head on from start 
to finish. First, this is a bipartisan effort; Walter Jones 
joined us in the introduction of this bill--it brings automated 
overdraft plans under the Truth in Lending Act, requiring 
financial institutions to obtain permission of consumers before 
enrolling them in the overdraft program.
    It requires that ATMs notify the consumer if the cash 
withdrawal would incur an overdraft fee, and allows the 
consumer to reject the withdrawal before the fee is incurred, 
thereby giving the consumer more control over their own 
finances. It limits overdrafts at the source, the financial 
institution, to no more than 1 per month or 6 per year. It 
prohibits the manipulation--
    The Chairman. The gentlewoman is recognized for an 
additional minute.
    Mrs. Maloney. Oh, my goodness.
    I feel strongly about this. Let me just say that it 
requires that overdraft fees be proportional to actual harm, so 
that a $5 cup of coffee isn't charged what amounts to a 700 
percent interest rate in the form of a $35 fee.
    And I want to applaud the efforts of some of the large 
banks that have worked to address this problem by voluntarily 
limiting the fees. But we feel that overdraft protections must 
be extended to all customers of all financial institutions. 
Even some of the banks which have dialed back overdrafts still 
permit up to 4 overdrafts per day.
    As the FDIC study has shown, the problem is so wide and so 
deep, encompassing the majority of banks and affecting tens of 
millions of consumers, Congress must address this problem 
across-the-board systemically.
    The bill is the largest--my latest version of my 
legislation on this issue; I have introduced it in several 
other Congresses. And I thank the chairman for sponsoring it 
and for having this hearing.
    I also want to welcome all of the witnesses. I believe this 
is the largest panel in the history of the Banking Committee--
the Financial Services Committee, showing the deep concern and 
attention, so I thank you all for being here.
    The Chairman. I thank the gentlewoman.
    I appreciate--I thought it was best to do it this way, 
there being a small number of members. I will say we had 
originally contemplated our being in session today, but I don't 
mind that because I think we will be able to focus with the 
small amount of members.
    But if we have unanimous consent--I have checked with the 
ranking member--each member will have 10 minutes rather than 5 
to question, to accommodate. There aren't that many people 
here, so that way we will be able to accommodate that; and we 
will have a 10-minute question period--I am afraid we can't get 
used to that, given the size of this committee--and we might 
even be able to do a second round. So I do want to take up for 
    And the gentleman from Alabama is now recognized for 10 
    Mr. Bachus. Thank you, Mr. Chairman.
    I will just touch on some brief thoughts. I am interested 
in hearing from the panel, because this is obviously an issue 
that I think all of us are interested in.
    As far as an alternative, if you don't have overdraft fees, 
what do you have? And what I have is a line of credit, and I 
think that is a far wiser and sounder money management tool. 
And I am not sure; I think one approach would be if the banks--
and I think with the financial literacy, if we said to people 
there is a better alternative than overdraft fees.
    I would be interested in you--maybe either in the questions 
or addressing why aren't there more lines of credit or are 
people not aware of that.
    I will say, one other alternative to overdraft fees is not 
a good alternative, and that is issuing a worthless check 
charge, which is a criminal charge. When I started practicing 
law in the mid-1970's, you had to take a certain number of 
appointed cases, and about a third of the docket in criminal 
court were people issuing worthless checks. You would go to a 
municipal court and you would find that was sort of the 
predominant charge. There were just people even in small towns 
who for one reason or another wrote a bad check. And I don't 
think any of us want to return to that.
    The fees, I think all bank fees, we all know that over the 
past 10 years those fees have--all fees have either doubled or 
tripled. I think that is pretty much a given. And maybe that is 
not true. I would like to hear if I am wrong about that.
    And the other thing about the overdraft fees is they are 
all $35. I think that seems to be the general charge. And every 
time the fee at every bank is $35, you wonder why that is. And 
maybe that is close to the cost.
    The ATM or point--either a debit card when you go in a 
grocery store, it is my understanding from some of the banks 
that you have a problem at that point telling people that they 
are overdrafting. I am certainly interested in that. Obviously, 
if you could tell them, I think it would be a good thing.
    Now, at the ATM machines it is also my impression that you 
can tell them there. And I really can't see anything wrong with 
a requirement that you tell them that they are overdrafting 
when they use their ATM card. But I think some of the smaller 
banks may have more difficulty, or the credit unions, with this 
because of technology.
    And the last thing I would ask is, how do we address this? 
The banks that are making money today are the old investment 
banks. They are making money trading, they are making money 
speculating, which can be a dangerous thing.
    The commercial banks are losing money. They may have a good 
quarter, but they are apparently not making a lot of money on 
lending even though the cost of money from the Fed is awfully 
    But if they are losing money, where do they make that up? 
And that is--so the timing of all this is a challenge, 
particularly when so many of our banks are losing money. Yes, 
they may be charging $35, and we may think that is too much, 
but we don't want to put all our banks out of business.
    So, Mr. Chairman, I do appreciate you having this hearing, 
and I look forward to hearing from the witnesses. And I 
personally am more in just a listening mode and would be 
interested in your comments.
    But I want to go right back to what I started with, and 
that is that I still remember in the late 1970's when I would 
be representing somebody on an appointed case, and they would 
have all these bad checks and a lot of times they would 
actually be in jail. And I don't think you see any of that, I 
don't think you see that like you used to. Now, I could be 
wrong. I would be interested in if some of the consumer groups, 
particularly whether you have sort of taken a look at that, and 
whether one unintended consequence of not having some safety 
net would result in people going to jail.
    And particularly college kids who can't seem to--many of 
them can't seem to manage their money; you certainly don't want 
a criminal record, and issuing a worthless check is a criminal 
record, which actually in many cases would disqualify them from 
jobs. So $35 fees are one thing; a charge that disqualifies you 
from an occupation is a much more serious alternative.
    So, with that, thank you, Mr. Chairman.
    I thank the witnesses.
    The Chairman. I just want to announce there had been some 
discussion of scheduling a markup of this bill on Tuesday. That 
will not happen now because we have the New York, Virginia, and 
New Jersey elections on Tuesday, and those are all within easy 
commuting distance of here, so a number of the members from the 
committee will be working that day. And the gentlewoman from 
New York, in particular, is very important obviously to this 
    So we will not be marking this bill up next week, which 
means we won't be marking it up, people for their own calendars 
should know, for at least a couple of weeks, because the week 
after it being Veterans Day coming in the middle of the week, 
we are very unlikely to be in.
    So we will proceed.
    I will just recognize myself for a brief comment, which is, 
I would urge my friends in the Banking Committee--we wouldn't, 
I believe, be in a situation where we are talking about 
legislation if you would have had an opt-in regime from the 
beginning. I guess I would make it a general rule that I have 
learned in politics: Don't do people favors without asking 
    Early on in my career as a Member of Congress, I received a 
phone call from a woman who said her daughter was about to be 
married--this is a true story--and her husband-to-be was in the 
military, and he was about to be shipped out, and could I get 
that date postponed so that the wedding could take place before 
he was shipped out.
    And being new at this, I tried to do that, whereupon I got 
a phone call from the groom-to-be that said, ``Mind your own 
business; don't do me a favor without asking me.'' I would urge 
that on you.
    I have to say, I am skeptical. People say, oh, we have to 
give them this overdraft without asking them. It is in their 
interest. That is another I have had as a Member of Congress. 
When people come to me to argue for something that benefits 
them, which is entirely legitimate, that is what people ought 
to be doing, we need to know how what we do affects people.
    But when we go to the next step and say, this is not only 
good for me, this is good for the people who will be paying me 
to do it, my answer is now invariably, when they come and tell 
me that, I will believe that. But unless you have a signed 
proxy form in which you are empowered to tell me that it would 
be a good thing for them to pay you, I am skeptical.
    So I really urge you to do this a lot. And part of it is it 
is human nature. It is not simply a question of how much money 
it is. It is indignation. It is the sense that people's 
integrity and autonomy has been impaired when you do this to 
them and then tell them you did it for them.
    So I would just urge you on all of this, have an opt-in, 
have it in clear language.
    I continue to get two types of mail from banks: 
solicitations to do things that will bring them money in very 
large type; and explanations of conditions that apply to things 
I do in very much smaller type. It is a very old joke and a 
very bad one.
    So you can save yourselves a lot of problems by that, and I 
would encourage you to do that going forward.
    With that, we will begin with the witnesses. And, as I 
said, we will have 10 minutes to question. I do have one 
preliminary question for Mr. Menzies, whom we welcome back, 
having been here yesterday.
    Who is running the bank, Mr. Menzies? We have you down here 
all week.
    Mr. Menzies. Thank you, Mr. Chairman. We have a very strong 
little community bank.
    The Chairman. We appreciate you. You have been a good 
witness, and we are glad to have you freed up for that.
    Let's begin with Ms. Fox.


    Ms. Fox. Thank you, Mr. Chairman, Ranking Member Bachus, 
and members of the committee. I am Jean Ann Fox, director of 
financial services for the Consumer Federation of America. I am 
testifying today on behalf of the national consumer groups 
listed on my testimony. We are here to express enthusiastic 
support for Representative Maloney's H.R. 3904, the Overdraft 
Protection Act of 2009.
    Banks extend credit when they cover an overdraft and then 
charge a fee. Instead of denying a debit purchase, banks are 
permitting it to go through and then are charging about $35 for 
each occurrence. Banks pay overdrafts on paper checks, on 
point-of-sale debit purchases, ATM withdrawals, automated 
clearinghouse transactions to pay bills. And due to Federal 
Reserve action on this, consumers are not protected under the 
Truth in Lending Act.
    These are very small loans. The FDIC study says that the 
typical debit card purchase is just $20, so consumers are 
paying $35 to borrow $20 for just a few days. The largest of 
overdrafts is just $78 for an ACH payment.
    So these are very small loans, and they are very expensive. 
In our most recent look at the largest banks' overdraft fees 
practices, the top fee was $39 for the initial overdraft, the 
lowest was $34. The typical fee is $35. Ten of the largest 
banks charge a second fee if consumers don't pay the overdraft 
back in as little as 3 days.
    The sustained overdraft fees are either one-time fees--for 
example, Bank of America started this June charging a second 
$35 fee if the overdraft was not repaid in 5 business days. 
Some banks charge $8 a day after a few days if the overdraft 
has not been repaid. This makes a single mistake, a single 
overdraft, turn into a financial disaster for consumers.
    These are very short-term loans. The bank takes payment out 
of the next deposit into your bank account to repay your loan 
if you haven't come down with cash to pay them off right away. 
And, as Representative Maloney noted, consumers do not 
affirmatively sign up for this program. This is the only form 
of involuntary credit that we know of that is so widespread.
    And, of course, the largest banks process payments large to 
small, or reserve the right to do that, which means that if 
they don't process payments out of your account as they come 
in, they wait a couple of days to have lots of little debits 
and one pretty good-sized check. You can wipe out the balance 
very quickly and then charge people a fee for each one of the 
smaller payments that overdraw.
    This is not what consumers want to have happen.
    CFA commissioned a poll by ORCI this past July and asked 
what consumers thought banks should be doing: 71 percent 
support that banks should get permission before they pay an 
overdraft; 85 percent say that banks should be required to 
disclose on the ATM screen that a withdrawal will overdraw the 
account and trigger a fee; 70 percent say that banks should be 
required to pay checks in the order they receive them; and 53 
percent strongly support that position.
    Your bill meets what consumers want to have happen.
    And the folks who are harmed by this are the folks who can 
least afford to pay the highest cost for overdraft coverage of 
any bank products. These are low-income consumers, these are 
young people, these are folks who are renters and likely to be 
    In the polls that we did this summer, twice as many people 
who said they paid for an overdraft were African American, 
compared to the sample as a whole.
    So this impacts a fraction of bank customers. According to 
the FDIC study, about a fourth of Americans are paying this 
$24-billion-a-year tab for credit they did not request, did not 
know they had, or were unable to make informed decisions.
    Your bill adds protections that consumers need.
    In addition to consent, which should be a given--that 
consumers should give consent to be able to borrow from their 
banks, the other protections help keep overdrafts from becoming 
a debt trap for unwary consumers--banks would have to comply 
with Truth in Lending and treat this fee as a finance charge.
    There would be a ban on manipulating the order of 
processing payments. Banks have a lot of different tactics that 
result in more fees, and they are instructed to use those in 
order to maximize income.
    Your bill provides a cap on fees so that a bank can't 
charge more than once a month if they have covered an 
overdraft, with a limit of 6 per year. This implements the 
safety and soundness guidelines that the FDIC provided a few 
years ago when banks were making a similar type of very short-
term, very high-cost credit to consumers.
    Thank you, Mr. Chairman.
    [The prepared statement of Ms. Fox can be found on page 114 
of the appendix.]
    The Chairman. Our next witness is Nessa Feddis, who is vice 
president and senior counsel of the Center for Regulatory 
Compliance, American Bankers Association.


    Ms. Feddis. Thank you, Chairman Frank, Ranking Member 
Bachus. My name is Nessa Feddis, and I appreciate the 
opportunity to testify on behalf of the American Bankers 
    Americans enjoy the most affordable, accessible banking 
system of any country in the world. They have access to full 
service checking accounts at little or no cost.
    Now, in the best of all worlds, people would only make 
payments when they have money in their accounts to cover the 
transaction. But this isn't a perfect world. When inadvertent 
overdrafts occur, most consumers value institutions paying 
their overdrafts, and they have come to expect it. Indeed, 96 
percent of consumers who had an overdraft paid were glad that 
it had been paid.
    Similar studies by the Federal Reserve found most 
participants expect and value coverage. Payment rejection means 
embarrassment, inconvenience, merchant fees, and other adverse 
consequences. Rejection means payment recipients refusing their 
checks or electronic payments in the future, or having negative 
information put into a credit report.
    Customers also often want their debit card transactions to 
go through, whether it is for groceries already selected and 
bagged, a meal already eaten, emergency purchases, or a bill 
they want to pay through a debit card.
    Overdraft fees are easy to avoid, and most consumers avoid 
them. In fact, in a survey of 1,000 bank customers, 82 percent 
said they hadn't paid one in the past 12 months.
    For customers who find it challenging to manage their 
accounts and avoid overdraft, there are many options available, 
including keeping a little extra money in the account or 
linking their account to a savings account or a line of credit. 
And, as the FDIC found, most institutions permit customers to 
decline overdraft services.
    ABA is very concerned about the potential unintended 
consequences of H.R. 3904. It presents significant challenges 
for all banks and will mean a complete redesign of checking 
account features and pricing. The result would be more hassle 
and cost for customers who find payments returned or rejected 
and will have significant unintended consequences on the 
availability of services and cost to all checking account 
    For example, the bill limits overdraft fees to those that 
are reasonable and proportional to the cost of processing the 
transaction. Such an approach misses critical elements of the 
    First, the cost of pricing ignores the deterrent value of 
overdrafts. Just like a parking or speeding ticket, overdrafts 
are meant to be a deterrent. Like any penalty, they are 
designed to get the person's attention in a way that a nominal 
fee does not.
    Second, the cost of processing does not reflect the risk of 
loss nor the lost income earned from balances which help pay 
for the cost of providing the account. This lost income makes 
it more expensive to offer accounts and means that those who 
manage their accounts well absorb those costs in the form of 
higher fees.
    Another provision which limits monthly and yearly 
overdrafts limits consumer choice by prohibiting overdrafts 
they want paid from being paid. Banks would reject overdraft 
transactions once the maximum fee has been met or just reject 
all. This means consumers suffer the consequences discussed 
earlier: the hassle, inconvenience, cost and embarrassment of 
rejected items, the very reasons that consumer testing has 
found people value and want this service. Such artificial 
limitations would lead to significant unintended consequences. 
As history has shown, government price fixing does not work and 
ends up hurting the people it is intended to help.
    H.R. 3904 also appears to require an APR calculation. As 
explained in greater detail in my written testimony and as 
government testing supports, calculating an APR for overdrafts 
would mislead and confuse consumers. The shorter the repayment 
period, the greater the APR will appear in instances involving 
a fixed fee. This means that the sooner the consumer repays, 
the greater the APR--a difficult concept to explain as it 
appears that paying earlier increases the cost and it is better 
to delay repayment; or the greater the overdraft, the less 
costly it is because, of course, the APR is going to be lower.
    In summary, ABA believes that overdraft protection services 
provide a valuable service. The bill will mean a complete 
redesign of checking accounts, more hassle and costs for 
customers who find payments rejected, less access to checking 
account services for some, and higher prices. Because of these 
and other unintended consequences, ABA opposes the bill in its 
current form.
    We are ready to work with this committee to address ways to 
improve the bill. Thank you.
    [The prepared statement of Ms. Feddis can be found on page 
105 of the appendix.]
    The Chairman. Next, Mr. Eric Halperin, who is the director 
of the Washington office of the Center for Responsible Lending.

                    FOR RESPONSIBLE LENDING

    Mr. Halperin. Good morning, Chairman Frank, Ranking Member 
Bachus, and other members of the committee. Thank you for 
inviting me to testify on H.R. 3904, the Overdraft Protection 
Act of 2009. The Center for Responsible Lending 
enthusiastically supports this bill as it will provide 
important protections for consumers from abusive overdraft 
    The Center for Responsible Lending is a nonprofit research 
and policy organization dedicated to protecting family wealth. 
We also are affiliated with Self-Help, which is a nonprofit 
loan fund and a credit union. Self-Help does not charge 
overdraft fees and routinely denies debit card and ATM 
transactions that would overdraw the account for no fee.
    In the midst of a recession, abusive overdraft practices 
are making the dire financial situation of families even worse. 
Banks are making loans that consumers never asked for at 
astronomical prices. In 2008, consumers paid nearly $24 billion 
in overdraft fees. This represented a 35 percent increase over 
the number of fees paid in 2006 and is now more than consumers 
spend on many basic household staples.
    The effect of overdraft fees is widespread. An estimated 50 
million people will overdraft their account at least once each 
year, and 27 million people will overdraw their account at 
least 5 times each year.
    To understand the growth of overdraft fees over the last 5 
years, it is important to understand the growth of debit card 
transactions which were key to this increase. Debit card 
transactions now account for nearly 50 percent of all 
transactions that trigger an overdraft, and they are growing 
every year as debit card transactions become more common.
    Checks, on the other hand, account for only about a quarter 
of all transactions that lead to an overdraft. And the number 
of checks written each year is shrinking, especially among the 
younger demographic.
    Debit card overdrafts are particularly indefensible because 
financial institutions could deny those transactions without 
charging their customers a fee. And this is, in fact, what most 
financial institutions did just 5 years ago. In 2004, 80 
percent of financial institutions routinely denied transactions 
that would overdraw the account that originated through a debit 
card. The FDIC found that in 2008, 81 percent of institutions 
now routinely approve those transactions.
    Debit card overdrafts are also more likely to be small-
dollar transactions. On the average, a debit card overdraft 
results in a $17 loan, the average fee paid is $34, and that 
loan is paid back in 3 days. You pay your bank $34 to loan you 
$17 for 3 days. It is an expensive and unsustainable way to get 
    When the debit card first came onto the market, we told 
consumers that this was an excellent tool to manage your 
finances; it is a way to make your purchases without going into 
debt on a credit card. But because of the widespread prevalence 
of debit card overdraft programs, we have turned that debit 
card into the most expensive credit card on the market although 
it lacks the basic consumer protections that we have for a 
credit card.
    Debit card transactions drive overdraft fees in every 
demographic including those consumers 55 and older. It is the 
leading cause of overdrafts for those consumers. People 55 and 
over, on all types of transactions, paid $6.2 billion in 
overdraft fees. But, most importantly, $1.4 billion in 
overdraft fees is paid by seniors who are heavily dependent on 
Social Security for their income. People who worked hard their 
entire lives and paid into the system are seeing $1.5 billion 
taken out of their Social Security check by their financial 
    Overdraft programs are structured to encourage rather than 
discourage use. Their high fees and short repayment time often 
trigger a debt cycle for people who overdraft repeatedly, where 
overdraft fees simply beget more overdraft fees, because once 
the fees and the loan amounts are taken out of their check, 
they are left with less money to make it to the next payday.
    H.R. 3904 contains important protections that go beyond the 
baseline of consent that you must consent to participate in the 
credit program. Reasonable and proportional fees will ensure 
that we will not have any more $35 fees for $5 overdrafts.
    The six overdraft limit, as Ms. Fox testified, is analogous 
to what the FDIC did in the payday lending context where they 
determined that providing high-cost, short-term credit for 
long-term credit needs is an unsafe and unsound banking 
    Certainly, we have learned over the last several years that 
providing high-cost, unsustainable credit is not just bad for 
consumers; it is bad for the financial institutions and bad for 
our economy in general.
    Both a reasonable, proportional requirement and the limit 
have precedent in the CARD Act, recently passed by this 
committee, where we provided protections to credit card 
    At their best, banks and credit unions provide Americans 
valuable services and access to credit on fair and appropriate 
terms. We want to encourage people to enter the banking system, 
but they need to have confidence that those accounts are safe. 
The Overdraft Protection Act will ensure fair and transparent 
pricing for overdraft coverage and save Americans billions of 
dollars that is currently being taken from their hard-earned 
    Thank you. I look forward to your questions.
    [The prepared statement of Mr. Halperin can be found on 
page 136 of the appendix.]
    Mrs. Maloney. [presiding] Thank you very much.
    Next, Mr. Rod Staatz, president and chief executive officer 
of the SECU Credit Union in Maryland; and he is speaking on 
behalf of the Credit Union National Association.


    Mr. Staatz. Thank you. Madam Chairwoman, Ranking Member 
Bachus, and members of the committee, thank you very much for 
having me today. As you said, I am Rod Staatz, president and 
CEO of State Employees Credit Union of Maryland. I am also a 
member of CUNA's board of directors.
    CUNA strongly supports the ability of credit unions to 
offer overdraft protection plans as a means to help their 
members resolve short-term financial problems. While the terms 
of the credit union overdraft protection programs may vary, 
they are structured to help pay rather than return 
nonsufficient funds transactions in exchange for fees that are 
similar to those charged for returned items. This spares the 
members the embarrassment of returned checks as well as 
additional fees charged by merchants.
    Such programs, when used appropriately by consumers, serve 
as a valuable alternative to overdrawing checking accounts or 
relying on payday lenders or check cashing businesses and are 
fully consistent with the philosophy and principles of the 
credit union system.
    CUNA recognizes there is a considerable interest in 
Congress in enacting a law to address abusive practices. 
However, we are convinced that H.R. 3904, as drafted, 
particularly the provisions that limit the number of overdraft 
fees, would simply end these programs.
    If the bill were law, consumers would incur more NSF fees 
and none of the benefits of having the transactions honored. 
They would pay more merchant return check fees and have more 
bad checks reported to credit bureaus. Inevitably, other 
adjustments will have to be made in checking account services 
and maintenance fees that will impact a wide range of account 
    I am very concerned that all consumers will lose under this 
scenario. We believe most credit unions approach overdraft 
protection in a manner that is in the best interest of the 
participating member as well as the overall membership of the 
credit union.
    Several years ago, CUNA adopted a policy calling on credit 
unions offering overdraft protection service to adopt standards 
that emphasize the credit unions' consumer orientation. This 
policy is included in my written testimony.
    Madam Chairwoman, my credit union offers an overdraft 
protection service which is similar to overdraft protection 
programs used by credit unions throughout the country. The 
objective of this program is to permit members on an occasional 
basis to have transactions completed even when they temporarily 
lack sufficient funds in their checking accounts or to spare 
them from merchant and collection agency fees incurred for 
return checks.
    A member can prearrange to have funds drawn from a selected 
savings account or establish a line of credit. And if he or she 
writes a check without enough funds in his checking account, 
the necessary funds are withdrawn from the other account or 
line of credit.
    There is no fee--zero--for these transfers. Our overdraft 
program allows SECU to pay an item after all funds in a 
member's accounts have been exhausted or a prearrangement 
transfer plan has not been established.
    However, SECU does not allow members to draw their balance 
into the negative at the teller line, through ATMs, or through 
their debit card. Our program only pertains to written checks 
and preapproved ACH transactions.
    The member's checking account is debited in the amount of 
the overdraft plus a $27 fee. The member is sent a 
nonsufficient funds notice explaining the account is negative 
and a deposit is required to bring the account into a positive 
status. If the account is not positive within 30 days, all 
future items will be returned NSF with the $27 fee.
    SECU does not market overdraft protection because we do not 
want to encourage members to live beyond their means. Knowing 
this is an option to cover overdrafts may lead some members to 
view it as available funds.
    If a specific member contacts SECU for a refund, we review 
the account and consider the specific circumstances. Also, we 
refer many of our customers to free counseling services. Those 
members who demonstrate repeated overdraft behavior will have 
progressive notification from warnings to account closure for 
overuse. In 2008, we had to close almost 500 checking accounts 
for overuse and abuse of the overdraft privilege.
    While we strongly agree overdraft abuses should be 
addressed, H.R. 3904 will have a dire unintended consequence 
which will result in harming consumers.
    As addressed in my written statement, some of the 
provisions of the legislation are positive and we would welcome 
the opportunity to work with you on them. We also think that 
the Federal regulatory system, which allows for a notice and 
comment process, should play a leading role to protect 
consumers from unintended consequences of Federal restrictions 
on overdraft programs.
    In addition to our strong objection to the limits on 
overdraft transactions that this legislation would impose, we 
have several additional concerns regarding the bill, which are 
described in my written testimony.
    Madam Chairwoman, you will hear horror stories about how 
bad overdraft protection is, and you will also hear many 
heartwarming stories about how it has helped many credit union 
members. I encourage you to do an independent, unbiased survey 
of consumers. Go to the people who are really affected by this 
and ask them what they really think about overdraft protection.
    Thank you for the opportunity to testify today, and I look 
forward to answering any of the committee's questions.
    [The prepared statement of Mr. Staatz can be found on page 
176 of the appendix.]
    Mrs. Maloney. Thank you very much.
    Next, Mr. Oliver Ireland, who is a partner at Morrison & 
    Thank you for being here.


    Mr. Ireland. Thank you, Madam Chairwoman, Ranking Member 
Bachus, and members of the committee. I am a partner in the 
financial services practice of Morrison & Foerster, and I 
worked for the Federal Reserve System for 26 years, 15 as 
Associate General Counsel of the Board in Washington. I am 
pleased to be here today to discuss H.R. 3904 concerning paying 
of overdraft fees.
    While paying overdrafts enables consumers to meet 
unexpected expenses and avoid failing to make timely payments, 
overdraft programs have been criticized as costly and unfair, 
particularly for small debit card transactions. H.R. 3904 would 
amend the Truth in Lending Act to require that consumers opt-in 
to overdraft programs, limit overdraft fees to 1 per month and 
6 per year, require that overdraft fees relate to the actual 
cost of processing the overdraft, prohibit charges for ATM and 
debit card transactions that are declined, and regulate the 
order in which transactions are paid.
    The Federal Reserve Board has proposed to address 
overdrafts at ATM and debit card transactions, but H.R. 3904 
would go well beyond the Board's proposal.
    Applying the Truth in Lending Act to overdrafts is likely 
to be confusing to consumers, however. When checks result in an 
overdraft, the consumer would have Truth in Lending billing 
error rights and UCC rights; but when the check didn't result 
in an overdraft, only the UCC would apply. A similar problem 
would occur for debit card transactions.
    In addition, it is not clear how the Truth in Lending Act 
disclosures would apply before an overdraft, and disclosing an 
annual percentage rate after an overdraft would be similar to 
the historical annual percentage rate that has been eliminated 
for credit cards because consumer testing found that it was not 
    H.R. 3904 applies the opt-in and the limitation on fees to 
check and ACH transactions as well as ATM and debit card 
transactions. The limitations on fees should not apply to check 
and ACH transactions. Businesses receiving these transactions 
typically charge significant fees for returned checks and ACH 
transactions that, when added to the NSF fees, lead to costs 
that significantly exceed overdraft fees. In addition, failure 
to make bill payments on time due to a returned transaction may 
lead to other costs or the inability to obtain some services.
    H.R. 3904 would prohibit overdraft fees due to debit holds. 
This practice has been an issue with respect to pay-at-the-pump 
gas station transactions. Although there has been progress in 
addressing debit holds such as the VISA real-time clearing 
program, if fees for overdrafts due to debit holds are 
prohibited, merchants should have a duty to submit transactions 
promptly to help avoid these overdrafts.
    H.R. 3904 would require overdraft fees be reasonable and 
proportional to the cost of processing the transaction. 
Overdraft fees should be reasonable if the consumer has chosen 
to opt-into them, I would think, and in any event should 
reflect the credit risk inherent in these transactions as well 
as the processing costs.
    In addition, the limitation on fees in H.R. 3904 may 
prevent the payment of overdrafts that some consumers want 
paid. At a minimum, a limit should not apply to ATM 
transactions where the consumer proceeds with the transaction 
after the notice that the transaction will cause an overdraft.
    Finally, overdraft fees are an important source of revenue 
to both large and small banks and credit unions. Loss of 
overdraft revenue is likely to lead to the repricing of 
checking account services in the form of lower interest rates, 
more and higher account maintenance fees, and perhaps even per-
transaction fees. In addition, consumers will need to manage 
their account balances more carefully and perhaps maintain 
higher balances to avoid timing errors.
    Thank you for the opportunity to be here today. I would be 
happy to address any questions that members of the committee 
may have.
    [The prepared statement of Mr. Ireland can be found on page 
158 of the appendix.]
    Mrs. Maloney. Thank you for your testimony.
    Our next witness is Mr. Jim Blaine, president of the North 
Carolina State Employees Credit Union.

                     EMPLOYEES CREDIT UNION

    Mr. Blaine. Thank you, Madam Chairwoman. I appreciate the 
opportunity to testify today. I will not use your valuable time 
to read the testimony already submitted, but I would like to 
make a few brief comments about the need and importance of this 
bill and several of its provisions.
    As to the need for limits and the potential for abuse, 
personally I believe the overdraft protection service, such as 
Courtesy Pay, should be entirely banned, not because this 
service does not do some good, but because I am convinced the 
harm caused by the product far exceeds any good achieved.
    Having said that, this bill offers a compromise which seeks 
to retain the good of overdraft while controlling for that 
potential abuse. I would note that all members of this panel in 
their testimony acknowledged that abuse does exist in this 
product. This is why limits and proportional costs are so 
important in this regulation.
    As to opt-in, since this august panel has great difficulty 
in agreeing on just what this product is--disagrees on its 
definitions, disagrees on its impact, and disagrees on the best 
course forward, since this experienced professional panel 
cannot agree--we can all hopefully agree that it is very, very 
likely that the consumer has no idea about this product and has 
no understanding of it. Therefore, there is a definite need for 
consumer opt-in into this product.
    The consumer needs to make an informed choice. That can 
best be achieved by a chance to review options and have the 
product clearly explained by their institution.
    As to coming under Truth in Lending, this product is alone, 
and no sleight of hand, no semantics nor any Federal Reserve 
regulatory reluctance can ever alter that fact.
    As financial institutions, we will further damage our 
credibility by refusing to tell the consumer the blunt truth 
about this product. It is a loan. Truth in Lending is an 
established, well-understood regulation, and placing overdraft 
protection within that existing regulation, within that legal 
framework, will reduce that much-dreaded increase in potential 
regulatory burden. Let's use the existing legal regulatory 
framework of Truth in Lending to manage this product in the 
    As to personal financial responsibility, I am all for it, 
and I hope we all are--but the product being offered is 
discretionary at the whim of the lender. The lender when 
offering this product accepts no responsibility to the 
consumer. There is no contract for this product, no listing of 
rights, no listing of duties by either party. Absent those 
contracts and those agreements, there is an absence of 
transparency, there is an absence of disclosure.
    Lack of acknowledgement of responsibility by either party 
on this product is financially, commercially, and legally 
insane. In this economic environment, the banking industry 
might find that citizens of this country consider their 
pontification on personal and financial responsibility not only 
rings hollow, but sounds hysterically absurd.
    Lessening of service, higher banking costs. Can they get 
any more expensive than what we are dealing with now? Our 
organization serves as an example that institutions can thrive 
and can prosper without offering the overdraft service product.
    Representative Bachus, we also have indicated several 
initiatives we will take later next year to try to eliminate 
those NSF charges.
    Claimants for the demise of free checking, the free market, 
and perhaps the entire free world, may be a bit overstated if 
this product is reduced in the future. It is worrisome that 
some panelists indicate that the survival of their institution 
hinges on the income from this product. Why is it a concern? It 
is a concern because their institutions' fate hinges on the 
future misbehavior of their customers and members.
    Lastly, wealth and earnings achieved through the misfortune 
and the misery of others should always be highly suspect, if 
not held in outright contempt.
    I look forward to your comments and questions.
    [The prepared statement of Mr. Blaine can be found on page 
54 of the appendix.]
    Mrs. Maloney. Thank you for your really remarkable 
    Mr. Dennis Dollar from Dollar Associates, LLC.

                        ASSOCIATES, LLC

    Mr. Dollar. Good morning, Madam Chairwoman. My name is 
Dennis Dollar. I served as a member of the National Credit 
Union Administration board from 1997 to 2004. I have been 
before this committee before, and it is a pleasure to be 
invited back.
    I also was the chairman of the National Credit Union 
Administration from 2001 to 2004. Prior to that appointment, I 
was president and CEO of the Gulfport VA Federal Credit Union, 
a relatively small--at that time--$32 million credit union with 
approximately 12,000 members in Gulfport, Mississippi.
    Since leaving NCUA, I formed a consultancy that works with 
credit unions and other financial service entities in their 
strategic initiatives. I guess you could say, from my 
experience, I have had the opportunity, Madam Chairwoman, to 
view the overdraft protection issue--as Judy Collins famously 
sang in the 1960's--``from both sides now.''
    Today, I have been asked by Ranking Member Bachus to come 
before you representing no particular group or organization, 
only as a former credit union CEO and a former regulator who 
now sees overdraft programs in action on a daily basis and 
whose experience indicates that while there are always ways in 
which such programs can be structured better for the consumers 
and the financial institutions they do business with, in my 
opinion, it would not be good public policy to completely 
eliminate them from the marketplace, as H.R. 3904 might 
effectively do.
    During my years in credit union management, there was no 
overdraft protection program in place, Madam Chairwoman. If a 
member wrote a bad check, we charged an NSF fee, and we 
returned the item. Needless to say, the members who, like all 
consumers, are always opposed to any user fees imposed on them, 
didn't like this fee arrangement. They not only faced our NSF 
fee, but they were also charged with an additional returned 
check fee by the merchant to whom they wrote the item. Often, 
they faced late charges if the returned item was for their rent 
or their insurance.
    But these folks weren't slugs or deadbeats. They were good, 
hard-working members who, on occasion, ran out of money before 
they ran out of month. It was for these members that the 
overdraft protection programs we are here today to discuss were 
originally developed to assist.
    Rather than being charged an NSF fee, the member would be 
charged an identical fee. And it is important to recognize 
here, Madam Chairwoman, that, if structured properly, an 
overdraft fee is not an additional fee above and beyond an NSF 
fee. It is an identical fee that they would be charged 
otherwise to honor the overdrawn item up to a specific fully 
disclosed limit, and that the item then must be settled within, 
according to credit union regulations, 45 days, or it has to be 
written off and formal collection efforts begun.
    Credit union members, as did many bank customers, saw value 
in these programs because they were able to realize those 
additional cost savings associated with avoiding the merchant 
fees and the late charges, the cancellation of service, and 
even possible prosecution, Mr. Bachus.
    A well-structured--and, again, I use that term because 
there certainly is abuse, and we have all seen those documented 
examples where there was manipulation of item clearance solely 
to maximize profits, or assessing the $35 in overdraft fees on 
a $5 debit purchase of a venti cup of latte at Starbucks.
    Those exceptions should be corrected and appropriately 
regulated. But overdraft programs, if done right--they can be 
done right and they should be done right--consumers and 
financial institutions benefit.
    There are standards that I provided in my written testimony 
that outline the way most responsible financial institutions, 
and certainly the credit unions that I work with, handle their 
overdraft programs today. Now, because some institutions don't 
follow these best practices doesn't, in my view, make a case to 
overregulate those who do with punitive or burdensome 
legislation that will result in many of their consumers losing 
their checking accounts and many institutions forced to 
transfer the cost of overdrafts from the consumers who use the 
program to the vast majority that do not.
    Now, my regulatory experience, Madam Chairwoman, does give 
me some pause about the potential impact on the long-term 
safety and soundness of some institutions that could come from 
effectively eliminating this source of earnings, but that is 
not why I am here today. My primary reason for supporting these 
types of programs is the benefit to the consumer that I saw 
taken away under the old, antiquated days of the NSF fee and 
legal prosecution in return to get their check or debit honored 
up to a clearly defined, clearly disclosed--and if institutions 
would do their jobs in financial education and making sure that 
the disclosures are appropriate and the members understood how 
this program is used, we would probably would not be sitting 
here today.
    But we do have to remember this: If there is no deterrent 
in the system, bad check writing will grow. A half century of 
NSF fees, often increasing in amount, proved to us that the 
number of overdrafts wouldn't be lowered simply by charging 
fees. Overdraft programs with the proper disclosures and a 
financial education commitment as a part of the program 
offering can provide greater consumer value and, in my opinion, 
I think that it could enable us to avoid having to return to 
those dark days of the costly NSF fees.
    There is a way that a balanced regulatory approach, handled 
through the regulatory agencies without a statutory mandate, 
can keep consumers within the traditional finance institutions, 
but yet ensure that these programs are fully understood and 
    That is what we would like to see.
    [The prepared statement of Mr. Dollar can be found on page 
99 of the appendix.]
    Mrs. Maloney. Thank you very much for your testimony.
    The next witness is Ms. Ellen Bloom, director of the 
Washington Office and Federal Policy, Consumers Union.


    Ms. Bloom. Thank you, Madam Chairwoman, Ranking Member 
Bachus, and members of the committee. I am Ellen Bloom, 
director of Federal policy in the Washington Office of 
Consumers Union, which is the nonprofit, independent publisher 
of Consumer Reports magazine. Our organization strongly 
supports H.R. 3904, the Overdraft Protection Act of 2009. We 
appreciate the chance to add our perspective on the impact 
current fee-based overdraft programs are having on consumers.
    First, I would like to briefly touch on telephone poll 
results from a nationally representative survey conducted by 
Consumer Reports National Research Center in February. This 
poll underscores two points: Consumers are often unaware of the 
consequences of overdrawing their accounts. When asked, 
however, they express a very strong desire to have more 
decision-making control over these fee-based overdraft 
programs. Here are just a few of the findings:
    Only 52 percent of those surveyed who use debit cards had a 
correct understanding that a bank typically allows the 
transaction to proceed, covers the shortage from the next 
deposit, and charges a fee for doing so.
    According to our poll, consumers appear even more 
misinformed about ATM overdrafts. Only 31 percent know that the 
bank will permit a transaction, subsequently dock the account 
and charge for the loan. It was clear that many consumers 
simply didn't expect to be charged a fee when they overdraft 
their account. To us it seemed clear, consumers would be 
unlikely to opt-out of a program of which they are unaware. And 
that is why CU strongly supports the opt-in language in H.R. 
    At the same time, our poll reveals that consumers 
overwhelmingly want choice when it comes to their bank 
accounts. Two-thirds of consumers polled said they would prefer 
to expressly authorize overdraft coverage so that there would 
be no overdraft loan or fee unless they opted-in to the 
service. Two-thirds also said that banks should deny a credit 
card or an ATM transaction if the checking account balance is 
too low. In addition to our polling, we have had consumers 
share their frustrations with us about automatic overdraft 
programs. I have attached a compilation of these stories to my 
written testimony.
    I will highlight three now. Rachel from North Carolina 
explained to us that her bank manipulates the order in which 
they clear transactions in order to maximize the number of 
times she overdraws her account. A married mother of three, 
Rachel at one time found 7 overdraft charges for debit card 
transactions. Each of these was for purchases of less than $20, 
and at least half were under $10. One charge was even for a $1 
beverage at a gas station. However, each of these transactions 
was penalized with a $35 fee. As Rachel explained to us, ``They 
cleared the largest amounts first because they want to charge 
the fee on the $1 purchase.'' Rachel went on to tell us, when 
you are taking $300 from us in 2 weeks, we get behind on other 
expenses. It literally took us 2 months to catch up.
    Justin from New York told us why he believes it is 
important to place strong limits on the number of times an 
institution can charge a fee for covering an overdraft. Justin 
told us that he was charged $385 for 11 overdrafts over a 10-
day period. Some of these transactions were for less than $10. 
All but 2 were worth less than $50. Eventually, after multiple 
calls to the bank, Justin was refunded $100 of his $385 total 
overdraft fees. Justin told us that he wishes he could just 
choose whether the bank covers the transactions when they 
overdraw his account.
    Don from Ohio described the snowball effect of overdraft 
fees. Don and his wife rely on a limited income, the paycheck 
from his part-time job, and the Social Security payment his 
wife receives for disability. Don checks his account balances 
regularly, but he was recently hit with a flurry of overdraft 
fees. One year ago this month, Don used his debit card and 
overdrafted his checking account by 35 cents. Before the bank 
had opened the next day, Don deposited $30 at the ATM to cover 
the 85-cent overdraft. A day later, he discovered he had 
incurred two overdraft fees, one for the 85 cents, and the 
other because the $30 deposit had not covered the deficit 
caused by the first fee. The second overdraft even triggered 
another overdraft fee and an additional $5 per day fee for each 
was added. After haggling with his bank, Don reached a 
compromise and only paid for one of the $35 overdraft fees, but 
it was grueling.
    Mr. Chairman, members of the committee, the Overdraft 
Protection Act will go a long way to stop the abusive practices 
experienced by Rachel and Justin and Don and thousands of other 
consumers across the Nation. We applaud its introduction and 
urge its prompt passage. Thank you.
    [The prepared statement of Ms. Bloom can be found on page 
58 of the appendix.]
    Mrs. Maloney. Thank you very much for your testimony.
    Our next panelist is Mark A. Colley, president and chief 
executive officer of the Tulsa Postal and Community Federal 
Credit Union, on behalf of the National Association of Federal 
Credit Unions.


    Mr. Colley. Good morning, Madam Chairwoman, Ranking Member 
Bachus, and members of the committee. My name is Mark Colley 
and I am here today to testify on behalf of the National 
Association of Federal Credit Unions, or NAFCU. I am the 
president and chief executive officer of the Tulsa Postal & 
Community Federal Credit Union, headquartered in Tulsa, 
    Tulsa Postal was chartered in 1923, making us the oldest 
credit union in the State of Oklahoma. We are a small credit 
union with 11 full-time employees and approximately $23.6 
million in assets. U.S. Postal Service employees and retirees, 
as well as their family members, make up most of our membership 
base. The rest of our members are people who live, work, or 
worship in Tulsa County and are classified as underserved.
    Most credit union members welcome and appreciate the 
opportunity to benefit from a courtesy pay or an overdraft 
protection program and consider it useful and a convenient 
service. Overdraft programs can prevent high fees and penalties 
that result from bounced checks, and provide important 
financial coverage in unexpected circumstances when members may 
need it the most. At Tulsa Postal, we currently offer courtesy 
pay programs to 936 of our 1,440 checking accounts. Only 2 of 
the 936 members have chosen to opt-out of our courtesy pay 
    In order to be enrolled in the program, a member must first 
select a transfer from another deposit account as the first 
overdraft coverage option. Courtesy pay is not triggered until 
all transfer options have been exhausted. We have several 
casinos in our area, and if we notice frequent casino activity, 
we shut off the debit cards and the courtesy pay program to 
them. We also do not report any of our overdraft protection 
balances to ATM or debit networks.
    If a member comes to us, concerned that they have 
overdrafted their account because of an error, we refund 100 
percent of the courtesy pay fee they were charged. If this 
happens multiple times, we ask them to come in so we can 
educate them about the proper use of the program.
    I have read the stories about individuals who have been 
charged $35 for spending just a few dollars more than they have 
in their accounts. At my credit union, we refund these fees, 
provided the member does not abuse the privilege. We have never 
had a single member complain about our courtesy pay program.
    NAFCU appreciates the Overdraft Protection Act's efforts to 
address our concerns regarding the credit union usury ceiling. 
We believe the bill is well-intended. H.R. 3904 is still 
problematic from a credit union perspective, and NAFCU 
maintains several significant concerns with this legislation.
    First, the current opt-in provision would impose a 
considerable regulatory burden on credit unions and create 
consumer confusion among those who believe they already have 
this particular product. NAFCU would support language 
establishing an opt-out requirement instead, allowing existing 
members who are currently covered by overdraft protection 
programs to deny the coverage if they wish. We could also 
support an opt-in requirement for new members or customer 
    NAFCU is also concerned about provisions in the bill 
limiting NSF fees for debit and ATM transactions. These types 
of transactions are covered by financial institutions when 
made, even if there are insufficient funds in the account when 
cleared. Since the transaction is authorized by the merchant at 
the time it takes place, the credit union is contractually 
liable to post the payment, even though the funds are not 
available in the consumer's account to cover it.
    Many merchants do not verify balances in real time. This 
provision therefore appears impractical and impossible to 
comply with. The limitation to one overdraft fee per month is 
highly problematic for the vast majority of credit unions that 
receive transactions not processed by merchants in real time. 
Further, providing same-day notification to members who have 
overdrawn their accounts would be another considerable burden 
for credit unions, as they may not learn that an overdraft has 
taken place until all transactions clear at the end of the day. 
NAFCU could support a more reasonable notification time frame.
    NAFCU is also concerned about the bill's limitation on the 
number of overdraft coverage fees. We believe that the 
restriction to 1 overdraft fee per month and 6 per year would 
significantly limit consumer choice. An alternative would be to 
require financial institutions to send a notification to 
consumers who have overdrafted several times during the course 
of the month, listing the options available to them.
    In conclusion, I would urge the committee to keep in mind 
that consumers can avoid overdraft fees, no matter what the law 
is, in one simple way, by managing the funds in their accounts. 
Increased focus on financial education funds and literacy to 
teach consumers this personal responsibility would make the 
need for overdraft protection moot.
    We urge the committee to take these concerns into account 
and make significant changes to the legislation before it moves 
forward. I thank you for the opportunity to testify and the 
privilege of being here today, and I welcome any questions that 
you may have. Thank you.
    [The prepared statement of Mr. Colley can be found on page 
85 of the appendix.]
    Mrs. Maloney. Thank you very much.
    Next, Mr. Richard Hunt, president of the Consumer Bankers 

                       ASSOCIATION (CBA)

    Mr. Hunt. And a very good morning, Madam Chairwoman, 
Ranking Member Bachus, and members of the committee. My name is 
Richard Hunt and, like many Americans, I too have overdrafted.
    I am president of the Consumer Bankers Association and it 
is indeed an honor to appear here today representing retail 
    For more than 90 years, CBA has served as the voice of the 
retail banking industry, which provides banking services to 
meet the needs of consumers and small businesses. Our members 
are regional and supercommunity banks, as well as bank holding 
companies. I appreciate the opportunity to appear before you.
    I want to provide a little bit of an insight about the 
services Americans may not be receiving from the media and the 
industry critics. Courtesy overdraft services are just that, a 
courtesy that banks have traditionally offered as a service to 
their customers. Our members report and statistics show the 
vast majority of customers manage their checking accounts in an 
appropriate manner, but even the most responsible consumer can 
overdraw an account every once in a while. When this occurs, 
the bank has one or two options. It can bounce the check, or 
deny the debit card transaction, or it can honor the check for 
the debit card purchase and assume that risk.
    If the bank does indeed deny these transactions, which we 
believe will occur at a more frequent rate if this legislation 
is enacted, several things will happen to the consumer. They 
will pay a fee to the bank; they will find themselves at a 
register, possibly the Rayburn Cafeteria, with a plate full of 
salad and no possible way to purchase that salad. They will 
surely face late payment fees and delinquencies from a merchant 
or creditor, and as previously mentioned, the consumer may also 
be at risk of violating State laws pertaining to bad checks.
    With this in mind, it is easy to understand why bank 
customers overwhelmingly prefer the bank to honor overdraft 
transactions, even when they result in overdraft fees. It is an 
important benefit thousands of banks provide to millions of 
    Although it may seem reasonable to expect that a bank 
customer will not overdraft an account, more than once a month 
or 6 times a year, as this legislation mandates, I can tell you 
this is not always the case, even for the most responsible 
customers. For example, a consumer can write several checks, 
not realizing their spouse also recently made transactions, 
whether it was an ATM machine or a check. If a bank is not 
allowed to charge an overdraft fee when those checks bounce, 
the bank simply may not honor these charges. Indeed it may not 
be a safe or sound banking practice to honor the transactions 
without charging a fee. The bank is paying money with the risk 
of not being paid back.
    Yes, there are anecdotes of a $39 cup of coffee resulting 
from an overdraft debit card transaction. These are abnormal 
cases. They do not reflect how the vast majority of bank 
customers manage their accounts. Congress ought not legislate 
based on anecdotes, especially when the legislation will harm a 
far greater number of customers than it helps.
    In closing, Madam Chairwoman, my own personal experience 
with overdraft protection was a relief. Despite having numerous 
ways to access my account balance, I simply had one transaction 
too many. Had it not been for the courtesy extended to me by my 
bank, I would have had more hassle and more cost. I paid the 
fee and was grateful the service was there. That allowed me to 
continue with my life without interruption.
    I appreciate the opportunity and look forward to any 
questions you may have.
    [The prepared statement of Mr. Hunt can be found on page 
150 of the appendix.]
    Mrs. Maloney. Thank you very much for your testimony.
    Our last panelist is Mr. R. Michael Menzies. He is the 
president and chief executive officer of Easton Bank and Trust, 
and he is testifying today on behalf of the Independent 
Community Bankers of America. Thank you. And he is a former New 
Yorker, so welcome.


    Mr. Menzies. Thank you, Madam Chairwoman. It is an honor to 
be back with you and Ranking Member Bachus and this 
distinguished committee today. I am truly proud to represent 
the Independent Community Bankers of America on this important 
legislation, and I am beyond thrilled that Mr. Hunt has 
introduced the notion that the elimination of overdraft 
protection could produce divorce. I hadn't thought of that one.
    There are 8,000 community banks in this country, most of 
which are at or below $10 billion in total assets. The only 
thing my peers and I can do to compete in this industry, the 
only thing we can do is to serve our customers better than the 
competition, and that includes with the quality and fairness of 
the overdraft services we offer.
    Three-quarters of community banks provide some form of 
overdraft protection, and all of those do so fairly and in a 
way that best meets the needs of their customers. However, 
community bank customers understand that when they spend money 
that does not belong to them, there are consequences and costs. 
While community banks always seek to treat customers honestly, 
the same expectations must hold true in reverse. Customers 
should not, and generally do not, expect a free pass when they 
overdraw their accounts.
    The alternatives for a customer include merchant returned 
check fees, possible credit report and bad check database 
blemishes, collection hassles, embarrassment, and the list goes 
on and on, as the panelists have suggested. These alternatives 
are far worse than incurring an overdraft fee.
    ICBA supports provisions of H.R. 3904 and improved 
disclosures for consumers, and restrict deceptive advertising, 
and encourage excessive use of overdraft programs. These 
efforts will go far in preventing unscrupulous providers of 
these services from taking advantage of consumers.
    However, we are very concerned with other provisions of the 
bill. I outlined all of these concerns in my written statement, 
but I would like to discuss three of them in my oral statement.
    First and most important, this legislation fails to 
distinguish clearly between discretionary overdraft coverage 
and automated programs that have drawn the ire of many for the 
so-called $35 cup of coffee. Discretionary coverage involves a 
banker, not a third party vendor or program, evaluating 
specific overdrafts on a case-by-case basis. These usually 
involve most important consumer bills, like a mortgage payment, 
a car payment, the utility bill, paid by a check or an ACH. It 
is these situations that demonstrate the strength and 
importance of the relationship-driven model of community 
banking and how overdraft coverage can be the most personal 
service a banker can provide. In fact, the Federal Reserve has 
acknowledged that these services should not be lumped into 
regulation along with automated overdraft programs.
    Second, we are strongly opposed to placing arbitrary price 
caps and limits on overdrafts, especially when tied to the cost 
of processing versus the amount overdrawn. If caps were 
imposed, community banks who are proven risk managers must find 
other ways to manage that risk. This could include elimination 
of popular checking account features, cutting off debit cards 
for overdraft-prone customers, and, more likely, closing 
accounts. An unintended consequence of this clearly could be 
expanding the ranks of the unbanked.
    Third, while we appreciate that the legislation calls for a 
study on the feasibility of point-of-sale overdraft for 
consumers, the fact remains that even for ATMs and branch 
tellers, the means do not exist to verify with 100 percent 
certainty that a transaction at a given time will not lead to 
an overdraft situation shortly thereafter. Not all banks and 
merchants process debit and ATM transactions in the same manner 
or at the same time. And banks that use a daily ledger balance, 
rather than real-time ledger balances, won't be able to comply 
with any real-time requirements.
    In conclusion, we are very concerned that this legislation 
attempts to restrict the supply of overdraft coverage while 
ignoring the fact that community bankers offer these programs 
to meet our customers' demand. In a perfect world, consumers 
would never find themselves facing an overdraft situation. But 
given what we know of consumer behavior, community banks need 
to be able to provide all types of overdraft coverage to our 
customers, while also receiving a competitive fee for the cost 
and risk of paying transactions for customers with the bank's 
own funds. Furthermore, any legislation that increases the 
number of returned checks and debit transactions, as I believe 
this legislation will as currently drafted, is not good for 
    Thank you so much and I look forward to answering your 
    [The prepared statement of Mr. Menzies can be found on page 
167 of the appendix.]
    Mrs. Maloney. I would like to thank everybody for their 
testimony, and I would like to yield first to Mr. Ellison who 
has a conflict with another important meeting. I yield Mr. 
Ellison 5 minutes.
    Mr. Ellison. And let me thank the chairwoman who has 
distinguished herself in many ways on behalf of the 
participants of the American economy at large, including 
American consumers. Thank you, Madam Chairwoman, for this 
hearing today.
    My first question is to Mr. Halperin. How much does it 
cost, to the best of our knowledge, to process an overdraft 
transaction--an overdraft? How much does it cost, everything?
    Mr. Halperin. The processing costs alone for an overdraft 
are fairly minimal. At this point, if there is an automated 
program, often those things can be handled without human 
intervention in terms of the decision to cover the overdraft. 
And then if it is a discretionary program, there will be some 
staff time.
    Mr. Ellison. Okay. If we could from the best that we know--
and I want to ask this of everybody, don't give me a long 
answer because I only have a few minutes--is it more than a 
dollar to process an overdraft? Let's start with you, Mr. 
Halperin. Is it more than a dollar?
    Mr. Halperin. If it is more, I don't have a precise number. 
If it is more than a dollar, it is not much more than a dollar.
    Mr. Ellison. Is it more than $2?
    Mr. Halperin. I imagine it would be somewhere in that 
    Mr. Ellison. Ms. Feddis, I am reading your body language. 
Is it more than $2?
    Ms. Feddis. Sir, we don't--
    Mr. Ellison. Now, don't give me a long answer, because I 
will cut you off if you do.
    Ms. Feddis. I think you have to go beyond just processing. 
I don't know what that number is. I suspect it probably is more 
than $2, but you have to go beyond just processing. There are 
other costs associated with having an overdraft, whether it is 
lost income, because you can't earn interest on a zero balance. 
It is much more--
    Mr. Ellison. Ms. Feddis, of course, I am very sensitive to 
who you represent and why you're here, and that is fine with 
me. I think we need everybody in this economy, everybody. But I 
am just trying to get information. Is it $5 to transact an 
overdraft fee? How much does it really cost?
    Ms. Feddis. I don't know, but there are more costs than 
just the electronic blip.
    Mr. Ellison. $5?
    Ms. Feddis. It is probably more.
    Mr. Ellison. $7?
    Ms. Feddis. It is probably higher.
    Mr. Ellison. I have a feeling that if I said it was $100, 
you would say it is probably higher.
    Ms. Feddis. No, I wouldn't say that. I don't know, but I 
have talked to one analyst who suspected it was more; it was 
certainly over $10.
    Mr. Ellison. Let's say it is $10; let's just say that. Mr. 
Halperin says no way; you say $10. Can we all say $10 is in the 
    Ms. Feddis. I don't know.
    Mr. Ellison. Okay. Well, if you don't know, then you don't 
    Ms. Feddis. Well, that is what I said.
    Mr. Ellison. Okay, fair enough. But you did say--
    Ms. Feddis. No, I said I heard from one analyst.
    Mr. Ellison. Let's just say it is $11, okay, just so we can 
talk about what we are here to talk about. If it is $11, Ms. 
Fox, how do they end up with $37, $39--how do they--even if it 
is $11, how do they end up with $39?
    Mr. Fox. Because they can. Banks put their fee information 
in the fine print, as the GAO found when they did their survey 
of banks. It is hard for consumers to get that information 
before they open an account. So you don't have competitive 
pressure on the size of the fee, and consumers don't think they 
are going to incur it.
    Mr. Ellison. Thank you.
    Mr. Ireland, I appreciated your comments. Why can't Ms. 
Feddis' organization and other folks who represent the banking 
industry support at least the opt-in provision that is 
contained in the bill?
    Mr. Ireland. I can't speak for Ms. Feddis.
    Mr. Ellison. I am not asking you to speak for her. Why 
can't the banking industry say, okay, we will support the opt-
in; we are not for everything, but we are for the opt-in.
    Mr. Ireland. In my testimony, I didn't argue with the opt-
    Mr. Ellison. Okay, I know you didn't. And the reason I am 
asking you is because it seemed to me, as I read your piece, 
that you sort of were looking at both sides of this thing.
    Mr. Ireland. It seems to me you are going to do an opt-in, 
and why don't we talk about--
    Mr. Ellison. But what I am asking you is, how does it harm 
industry for an opt-in--or do you agree that it doesn't?
    Mr. Ireland. I think there will be a revenue impact of an 
opt-in that will lead to some repricing of the account.
    Mr. Ellison. So what is wrong the opt-in, Ms. Feddis?
    Ms. Feddis. The ABA does support choice, we have always 
supported choice. Most banks, as the FDIC found--
    Mr. Ellison. Remember, 5 minutes. If I had 20 minutes, I 
would let you talk as long as you wanted.
    Ms. Feddis. Oh, I am trying to answer the question. I'm 
    Mrs. Maloney. I grant the gentleman 2 additional minutes so 
the lady can answer the question.
    Mr. Ellison. Thank you.
    Ms. Feddis. Thank you, Madam Chairwoman. We do support 
consumers having choice. As the FDIC found, 86 percent of banks 
do offer the choice, opt-in or opt-out. Generally--
    Mr. Ellison. Thank you very much. And so, I think I am out 
of time and I want to thank the chairman again. I want to thank 
everyone on the panel, because I think we are all here trying 
to get to the right answer. Thank you very much.
    Mrs. Maloney. Reclaiming our time, I grant the gentleman, 
Ranking Member Bachus, 5 minutes.
    Mr. Bachus. I thank the gentlelady. Opt-in, there seems to 
be quite a bit of confusion over whether the banks and credit 
unions can do this. Are you saying, Ms. Feddis that 80 percent 
of the banking institutions allow opt-in?
    Ms. Feddis. No. They allow choice, either opt-in or opt-
out. Most of them allow opt-out. About 11 percent, according to 
the FDIC numbers, which only represents the banks surveyed, 
about 11 percent provided opt-in and 75 percent opt-out.
    Mr. Bachus. All right.
    Ms. Feddis. I am not sure that, as I said, we support opt-
out, because the consumer testing has found that most people 
want overdrafts covered and that the default should be for the 
preference of most people. But opt-in is certainly something we 
would consider.
    Mr. Bachus. Something what?
    Ms. Feddis. Something the industry would consider. And some 
institutions are already moving toward opt-in. Some even large 
institutions don't allow any sort of debit card overdrafts, but 
that is something we would consider.
    Mr. Bachus. Mr. Colley, you said that it is a problem, opt-
in; is that right?
    Mr. Colley. Yes, I did. For our current members who are on 
the program, it would be a really large regulatory burden to 
try to get in touch with them, and also lead to more confusion 
for them to sign up for something that they perceive that they 
already have.
    Mr. Bachus. What if there were opt-ins for new consumers?
    Mr. Colley. NAFCU does not have a problem with that, sir, 
and neither do I personally as a CEO.
    Mr. Bachus. What about Mr. Hunt?
    Mr. Hunt. Mr. Bachus, we think it would lead to mass 
confusion for consumers if you required current customers to 
    Mr. Bachus. No, I'm talking about new customers.
    Mr. Hunt. Sure, that is a viable option. Many of our banks 
are in fact doing that. They are opting-in for new customers. 
We think it is better for current customers to have the ability 
to opt-out of overdraft fees.
    Mr. Bachus. No, I'm talking about new customers.
    Mr. Hunt. Yes. Many of our banks are already going that 
direction, and we think that is a viable alternative.
    Mr. Bachus. I know there still--I am trying to maybe get 
some things that we could agree on.
    Now the debit cards, I think we all would agree that if the 
technology was there, we would deny those at the point of sale; 
is that basically right? Mr. Ireland?
    Mr. Ireland. There is--many banks find that if they check 
the balance when the transaction goes through at the point of 
sale and there is not money there at the time the debit card is 
used, there is money there when the debit settles a day or 2 
later. And so there is a lack of precision--you could deny the 
transaction, but you would deny a lot of transactions that now 
actually get paid.
    Mr. Bachus. But what I am thinking, let's just assume a 
decision was made from a policy standpoint that they were going 
to deny it if they checked at that time.
    Mr. Ireland. They could do that.
    Mr. Bachus. Can the small banks--Mr. Menzies, you were 
telling me that some of the community banks, some of those 
don't have that ability?
    Mr. Menzies. Absolutely true, Congressman. Many banks 
process these items differently and we don't have real-time 
capacity, because we are focused on serving our customers, not 
just on buying the most expensive technology of the day.
    Mr. Bachus. Mr. Halperin--and I don't want to put words--
the larger banks are--they have that ability, right?
    Mr. Halperin. Mr. Bachus, all banks have the ability to 
deny. Our affiliated credit union is quite a small credit union 
and we deny transactions. We currently have a real-time system, 
but even when we had a posting system, we denied those 
transactions that would overdraft the account. We have heard 
other people on the panel today who also have testified that 
they deny debit card transactions from smaller institutions. 
But there is one very large institution, Citibank, that says 
its policy is to deny debit card transactions--
    Mr. Bachus. And you like that policy; is that correct?
    Mr. Halperin. Yes, we think debit card overdrafts, as the 
Federal Reserve found, often provide very little or no benefit 
to the consumer; there is no avoidance of a fee, which I know 
is one of your concerns in your opening remarks over the NSF 
fee and the bad check issue. That simply is not present in the 
debit card context. So we think a denied debit card 
transaction, unless the consumer has chosen a line of credit or 
another method to have that covered, is the preferable outcome.
    Mr. Bachus. I think everyone agreed that a line of credit 
is a better alternative. And if you did start denying debit 
card transactions at the point of sale, that would encourage 
people to come in and open a line of credit, I would think. Ms. 
    Mr. Fox. Yes, one of the important side benefits of 
requiring opt-in in limiting this problem of overdrafts is that 
banks will have an incentive to promote their much more 
affordable, more appropriate products. Their line of credit 
simply costs about 18 percent a year, and consumers get to pay 
it back in installments. Banks have transfer services. If they 
have to get you to sign up, they have to offer all their 
products. People are likely to get a cheaper option.
    Mr. Bachus. Now ATM--can all institutions tell them, when 
they use their ATM card, whether or not it will overdraft their 
    Mr. Ireland. Some institutions can tell on their own ATM. I 
am not aware of anybody who has an arrangement that, if you use 
another institution's ATM, that they have that communication 
facility at this time.
    Mr. Bachus. Would we all agree that if you can tell them 
that you shouldn't overdraft their account, does ABA agree with 
    Ms. Feddis. We would support providing the option to 
proceed with the transaction at the ATM's--for ATMs owned by 
that institution. As Mr. Ireland points out, it is not possible 
with today's systems to do it at the point of sale, to give the 
option at the point of sale or at another ATM.
    Mr. Bachus. Because I do think that if you approach your 
ATM--and you used to, but I think the banks have stopped doing 
this, but I thought--for a while I think there was actually--
and I think this is very misleading, the balance would include 
the overdraft, their ability to overdraft, even the line of 
credit, which--
    Ms. Feddis. The regulation now prohibits that.
    Mr. Bachus. It now prohibits that?
    Ms. Feddis. The Federal Reserve did address that.
    Mr. Bachus. So if it can be done.
    Now, Mr. Menzies, can the small banks let people know at 
the ATM, if it is there--obviously, can we agree if it is their 
bank's ATM--
    Mrs. Maloney. I grant the gentleman an additional 2 
minutes. He is well over his time.
    Mr. Menzies. Congressman, we do not show our overdraft 
privilege customers being available at the ATM, because we 
don't want that, quite frankly. We want it there for protection 
for checks and debits. But your question was---
    Mr. Bachus. When they use their ATM, if it would overdraw 
that account, do you know--do they get that note--
    Mr. Menzies. They don't have access to the funds at the 
ATM, at our ATM. They are not allowed to go to the ATM and use 
the debit card and access their privilege account at the ATM.
    Mr. Bachus. Oh.
    Mr. Menzies. We don't want them using it at the ATM for a 
cash fund because the purpose of it is to protect against 
bounced checks and debits.
    Mr. Bachus. All right. Do the banking institutions have a 
problem with processing checks in the order they come in? I 
would ask the American Bankers Association.
    Ms. Feddis. Well, I guess under this bill it probably isn't 
necessary to address the posting because it is capped at one 
per month, so it doesn't matter what the posting order under 
this bill. It wouldn't be necessary to address it.
    Mr. Bachus. I am not talking about under this bill.
    Ms. Feddis. It is a very complicated and much litigated 
    Mr. Bachus. No, no. But what I am asking is, do you object 
to processing them in the order they come in, is that--
    Ms. Feddis. Well, I can't give you a straight answer 
because it is very complicated, the payment order. In fact, Mr. 
Ireland has actually studied it.
    Mr. Bachus. My bank processes them in--they used to process 
them in a different order. And I actually asked them, I said 
you hear all this stuff about how they take the large ones so 
they can get--and my bank, which is a large bank, actually said 
they quit doing that because they didn't think it was fair to 
their customers.
    Ms. Feddis. Well, a lot of times people do want--and the 
consumer testing has found this--people want important payments 
made and they tend to be large--the mortgage, the rent--and so 
if they want those paid--and so that is why some institutions 
have done that. According to the FDIC, about half of the banks 
actually process small to large, about 24 percent under their 
survey found that it was--
    Mr. Bachus. Okay.
    Ms. Feddis. The banks have been sued for both. One large 
institution was sued for paying low to high. And what people 
really want is--
    Mr. Bachus. At least we clarified it, right?
    Mrs. Maloney. The gentleman's time has expired.
    The Chair grants herself 5 minutes. One of the purposes of 
the bill is what the gentleman is trying to clarify; more 
information to the consumer will help them, particularly during 
this extreme financial time, to better manage their own money. 
And the bill does have in it a specific prohibition to having 
financial institutions list on ATMs more money than what the 
consumer has. If it includes a line of credit, if it includes 
other access to capital, people are misled. They think they 
have money they don't have. It is one reason that we worked 
very hard to have this under the Truth in Lending provision so 
that consumers will have more understanding of what is 
    I would like to ask Ms. Feddis and Mr. Hunt and others from 
financial institutions if you could explain why overdraft plans 
are the only financial product now where in essence you take 
the consumer's money without the consumer's permission? Why is 
that the only service that you have this means of operating? 
Mr. Hunt?
    Mr. Hunt. Thank you, Madam Chairwoman. I want to tell you, 
we want to make sure our customers are always happy. We know in 
this time that if a customer is not happy with the services we 
provide in this day in time, they can quite frankly go to their 
terminal and open an account at another bank to do that.
    When a person does sign up for a deposit account, there is 
a deposit agreement they do sign, that says we have the 
opportunity to offer services for a fee. And that is what we 
do. As we have stated many times before, this is a very popular 
program we offer to our consumers. We do not like overdraft 
fees. We do not want someone to overdraft. That is why when a 
person signs up, we tell them about lines of credit, lines of 
credit to their savings account, their checking account, and 
everything else.
    Mrs. Maloney. Mr. Hunt, what we are hearing from consumers 
is, why are they paying for a service that they don't want? 
These consumers are telling me that they would prefer for their 
debit card to be declined, for their check to be declined, as 
opposed to being charged the $35 fee for--many times it is an 
    I would like to ask you, how is this action any different 
from a Burger King charging you for a hamburger you don't even 
want? In that case, it would be called a robbery, taking 
someone's money for a product they don't even want. What we are 
told is that consumers go to their banks and say, we don't even 
want the fee, we don't want the protection, we don't want the 
service. And some financial institutions are forcing them into 
a program they don't even want.
    But I would like to ask you, what if Burger King were to 
take your money for a product without asking for it? Wouldn't 
you be a little disturbed? That is why we have an opt-in so 
people can decide what they want. And how is what some 
financial institutions are doing different from McDonalds or 
Burger King, automatically charging you for fries or a burger 
that you don't even want and you are charged for something that 
you would prefer not to have? How is that fair?
    Mr. Hunt. Madam Chairwoman, I appreciate the question, and 
I will tell you this: If a customer does not want any overdraft 
protection, it is very simple. You go to the bank and you tell 
them, I want to opt-out. The bank will adhere to your wishes.
    I will also tell you, the mention of the $35 fee that 
everybody keeps mentioning, that is the maximum fee that a bank 
imposes. Most of the time when you an accidental overdraft, a 
person who may overdraft 1 time a year, the fee is lower than 
that, roughly $10 or $15. And I will tell you, Madam 
Chairwoman, if you go to your--
    Mrs. Maloney. Again, sir, that may be your institution.The 
average we are reporting is $35. And sometimes it can be $35 
for each transaction. I have had consumers come to me and tell 
me that at the end of the weekend, they were charged $300 or 
$600 because they didn't know that the pack of gum, the carton 
of milk, the sandwich, the cup of coffee, with each purchase 
incurred a $35 fee.
    So I would like now to ask some of the consumer groups on 
this opt-in and opt-out situation. I would like them to expand 
on opt-in and opt-out. And isn't it better to let consumers 
make a choice about what products they want?
    Mr. Halperin, Ms. Fox, Ms. Bloom, if you could expand 
please? The opt-in, opt-out is a big issue, and I would like 
you to expand on why you prefer the opt-in over the opt-out.
    Mr. Halperin. Madam Chairwoman.
    Ms. Fox. You go first.
    Mr. Halperin. The opt-in will create a critical moment of 
choice where consumers can be given all their options and 
choose that cheaper, contractually obligated option, the one 
that will always be there, the line of credit or another 
    One thing consumers experience repeatedly is that they 
cannot opt-out of their bank's overdraft programs, especially 
at larger financial institutions. There have been some recent 
changes announced by large financial institutions where some 
are moving towards an opt-out, and we are happy to hear that. 
But repeatedly, we hear from consumers that they can't get out 
of their program. Opt-in is critical because it creates that 
moment of choice.
    Ms. Fox. And the interesting thing is that back in 2005, 
the bank regulatory agencies issued some guidelines, and they 
said banks should get consumers to opt-in to their overdraft 
program. And failing that, they should at least let them opt-
out. And as the FDIC survey found, a significant portion of 
banks won't even let you opt-out. So what happens is banks also 
won't let you close your account or freeze your account when 
you owe them an overdraft fee. And that causes a real burden as 
    Mrs. Maloney. Well, if I could just comment, in the 1960's, 
some creditors sent unsolicited credit cards to consumers and 
there was an absolute outcry, and Congress had to step in to 
stop that and ban that practice. Isn't this basically the same 
thing, where they are giving you something you don't want that 
actually costs you money?
    Mr. Fox. That is right. This is the only form of 
involuntary credit we know about. Banks mail out debit cards to 
their customers that can be used as credit cards. These were 
sold to people as a substitute for cash. People don't know, 
they don't think that they can get into debt by using their 
debit card. They think their bank will reject it if they don't 
have enough money to cover it. That is what the system should 
do. This is not a credit instrument. It should be a payment 
instrument, and banks should not be permitted to mail out live 
debit cards that can trigger debt.
    Mrs. Maloney. Thank you. Mr. Posey from Florida is 
recognized for 5 minutes.
    Mr. Posey. Thank you, Madam Chairwoman. I want to thank 
everyone on the panel for some spectacular testimony. Some of 
it was a little conflicting, but I think it was all sincere 
from your perspective and very enlightening to us. I wish we 
weren't here to even have to talk about overdraft, and there 
wasn't a need for such a thing, and that there could be no 
abuse by the borrower or the lender, but that we know in 
reality and in commerce that is going to be necessary 
occasionally. And we know that ultimately at the end of the 
day, there is, or at least one would think there should be, 
some consequences for not paying obligations that you promised 
to pay. I hate to use that term, it scares a lot of people, it 
is called personal responsibility.
    And sometimes, I wonder if more government and more 
regulation and less personal freedom also means less personal 
responsibility; if at the end of day, we don't really hurt 
people more than we help them. And what I want to make sure is 
the unintended consequences of what we are looking at don't go 
too far overboard. I know the $1 Coke really hit my nerve, it 
seemed pretty outrageous. It reminded me of the last time I was 
1 minute late for getting my dime in a parking meter, and it 
was a lot more than $35, and they do that to poor people and 
rich people, it really doesn't matter. The parking meter 
doesn't do an analysis on how much it costs City Hall to 
collect that thing, whether we think it is fair or not fair. 
That is the cost of parking there, and if you don't want to pay 
a huge fine, make sure you get your nickel or quarter in there 
on time. Again, it is personal responsibility.
    I wonder, from any of the consumer organizations, and just 
respond if you know this for a fact, has there been a survey 
that has just been straight up: Would you prefer overdraft 
protection at $35 a crack, or would you prefer nonsufficient 
funds at $35 a crack, and possible legal liability? Has anyone 
asked their respondees that question and framed it just like 
that in this polling? I would like to hear from you if you 
    Mr. Halperin. Congressman--
    Mr. Posey. If you haven't asked that exact question.
    Mr. Halperin. That exact question, worded that way? We have 
not asked the question worded in that fashion.
    Mr. Posey. Because I think that is the bottom line for most 
of my people back home. I know I would not want to pay a $35 
fee for an overdraft, but I would much less want to pay a $35 
nonsufficient funds fee and have my check bounced.
    Mr. Halperin. Congressman, we did ask--as I mentioned in my 
opening remarks, debit card transactions are driving the 
overdraft volume--the analogous question for debit cards, which 
is: Would you rather have it declined or have the transaction 
processed and pay the fee? And for debit cards, the numbers 
were 80 percent of the consumers would rather have it declined; 
75 percent of consumers who had overdrafted in the last 6 
months would prefer to have it declined in the debit card 
    Mr. Posey. Okay, the next question. A lot of times I think 
it is perceived that we are looking at huge banks exploiting 
people in the marketplace, day in and day out up here. But we 
have representation here from a lot of community banks and 
credit unions. And I would interested in knowing from them what 
the unintended consequences might be of this: If we regulate 
this to a $10 charge, and if people opt-in and say, look, for 
$10 a transaction, we will pay all the bad checks that you ever 
want us to pay, what that could mean at the end of the day?
    I know Congress used to have a program something like that 
and they had to completely eliminate their overdraft protection 
because it was so badly abused. Does anybody in the marketplace 
want to weigh in on that?
    Mr. Staatz. We are concerned, Congressman, that there would 
be abuse and that abuse would be even higher than some of it is 
today, and the number of overdrafts would increase. And we 
really don't want that to happen.
    Mr. Posey. We haven't heard today about the loss ratio 
either when they do an overdraft protection or an overdraft 
notice. How often is that money ultimately recovered? Does 
anybody know that, or are there some loses that are sustained, 
that are not repaid, that go into that $35 fee?
    Mr. Staatz. Absolutely, yes. I don't have the numbers for 
you, we could probably get that, but some of those are fairly 
substantial, depending on the institution.
    Mr. Dollar. Congressman, most of the credit unions that I 
work with reserve 6 to 7, perhaps at much as 8 percent, of the 
total amount for potential losses.
    Mr. Posey. I think, as the lady pointed out before, the 
processing fee probably should be quantified generally. And I 
think these things need to be quantified, too, to give us a 
full picture of what all is involved in this. It is not just 
taking $35 and it is all 100 percent pure bottom-line profit. 
That is the feeling you get when you hear one side of the 
equation, until you hear the other side of the equation. It 
doesn't seem to focus as much in the middle.
    I would like in the future when we have these discussions, 
if we could just get more information like that.
    Mrs. Maloney. The gentleman's time has expired. But I would 
like to note in Mr. Blaine's testimony earlier, he said his 
institution charges $12 for nonsufficient funds and 50 cents 
for a transfer from another account, which is the equivalent of 
an overdraft.
    The Chair recognizes Mr. Green for 5 minutes.
    Mr. Green. Thank you, Madam Chairwoman. I thank the 
witnesses for appearing today. And Mr. Blaine, I must tell you 
that you have completely destroyed my line of questioning.
    Mr. Blaine. Is that good or bad?
    Mr. Green. I am concerned about you, Mr. Blaine. You used 
terms that we don't hear a lot of from people in your industry; 
``fair choice,'' you used the term ``socially conscious,'' 
``socially responsible.'' You indicate that credit unions ought 
to wear white hats. And then you conclude with ``do the right 
    I will tell you that I read it, I heard it, and I was 
impressed that someone who is so closely aligned with the 
industry would use this type of terminology. And I am impressed 
because I think the American public is currently concerned 
about what they perceive banking to be all about. I think that 
the American public is of the opinion that banks don't have a 
social conscience, that they are not fair, that they are not 
being responsible at a time when responsibility would be 
helpful to the public. And I think that they don't believe and 
perceive banks to be the wearers of whites hats.
    Having said that, I will tell you that I don't find 
overdraft fees, per se, invidious. I think that there may be a 
means by which they can be utilized and I think that is what we 
are trying to do today, to ascertain how we do this fairly. And 
so your testimony was a little bit unusual, given your line of 
work and given that I rarely hear it here at Congress. And so I 
thank you for your testimony. It meant something to me 
    I think that this notion that when you do a person a favor 
and you charge a fee, and then you want to appear to be the 
Good Samaritan is a bit much. The Good Samaritan did not charge 
when he stepped across the street to help the person who had 
been beset upon by culprits.
    It is a rare thing for me to accept the notion that you do 
me a favor. I come up to the gas pump and you say, let me pump 
your gas--this happens to all of us I am sure--and once you 
pump my gas, you say, by the way, that will be $5, but you were 
doing me a favor. And the question becomes, if you are going to 
do me this favor and appreciate overdraft protection, I have 
overdraft protection, can you at least give me notice that you 
are about to accord me a favor? That doesn't seem unreasonable, 
to tell me that you are about to do a favor that is going to 
cost me, by the way. It just seems fair.
    I can use my credit card almost anywhere in the world. And 
to say to me that you can't tell me that when I'm about to go 
into overdraft, because it is not an electronic device that 
your company placed in the marketplace, if that device cannot 
say to me, by way of written word electronically that I am 
about to go into overdraft--as a matter of fact, it can even 
talk to me. We have the technology for it to literally say, 
``Al, you are about to go into overdraft.'' That technology 
exists. The question is: Do we want to spend the money on it? 
And I understand that can be expensive.
    But let's talk about a much more empirical experience that 
I have had, because I think that intent is measured by your 
overt manifestations, so I am still talking about notice. I 
want to tell you about a personal experience with notice. I 
went to the bank and handed a check to the teller. Yes, the 
check went into overdraft; thank God I had the protection on my 
credit line. But the teller never said to me, ``You are a few 
dollars over with the check, do you want this to go into 
overdraft and do you want to pay this fee, which will be more 
than your actual amount that we are depositing into your 
account?'' Now that kind of notice I just believe a bank can 
    I am not going to say the name of the bank, but this is an 
actual experience. When the teller would not bother to tell the 
person who is standing right there in the presence of the 
teller, you have gone--this will take you into overdraft. It 
just seems fair to borrow Mr. Blaine's terminology to say to 
people we are about to do this. The technology exists. I think 
it can be done.
    May I get 1 additional minute, Madam Chairwoman?
    Mrs. Maloney. The gentleman's time has expired. I will 
grant an additional minute for the panel to respond to your 
question of why they are not providing that service.
    Mr. Green. May I pose the question?
    Mrs. Maloney. Sure.
    Mr. Green. The question is just one of the fairness issue 
that Mr. Blaine has raised. Is it fair to tell people that you 
are about to charge an overdraft fee? And I will just start 
with Ms. Fox and you can go right down the line and be as terse 
and laconic as possible.
    Ms. Fox. Absolutely.
    Ms. Feddis. Yes.
    Mr. Halperin. Yes.
    Mr. Staatz. Yes.
    Mr. Ireland. Yes.
    Mr. Blaine. To have a fee market, you must have a free and 
    Mr. Green. Mr. Ireland, could your just speak a little 
    Mr. Ireland. Yes.
    Mr. Green. Okay, thank you.
    Mr. Blaine. To have a free market, it must be free and 
fair. You can't have one without the other.
    Mr. Green. I take it that is a ``yes?''
    Mr. Dollar. Disclosure is the key, yes.
    Ms. Bloom. Yes, absolutely.
    Mr. Colley. Yes, sir. And if you were a member of my credit 
union and did that, we would tell you that it was going to 
cause you an overdraft.
    Mr. Hunt. Yes, sir, we concur.
    Mr. Menzies. Yes, sir, our members know what our fees are.
    Mr. Green. Thank you, Madam Chairwoman.
    Mrs. Maloney. Mr. Royce is recognized for 5 minutes.
    Mr. Royce. Madam Chairwoman, I would like to yield to the 
gentleman from Alabama for a question.
    Mr. Bachus. I thank Mr. Royce. I wish I could submit a 
question you all would have said yes to. You were talking about 
overdraft privileges. It suddenly occurred to me that I think 
that is what the Federal Reserve Board and the Treasury have 
given to the ``too-big-to-fail'' banks. That is one overdraft 
privilege I wish they had not given. And it is the taxpayers 
who pay for that when they overdraft.
    My first question maybe sounds like a legal question, but I 
do think it has some ramifications. I will ask Mr. Ireland, and 
then if any of you want to comment. But this is a legal 
question, it is not a policy question of what it should be. Is 
an overdraft charge a loan or a penalty?
    Now, let me tell you why I am asking that question. Truth 
in Lending covers loans, the Truth in Savings Act covers 
penalties. So it makes a difference.
    Mr. Ireland. Under the Truth in Lending Act, an overdraft 
fee, as it is implemented by every banking institution I have 
seen, is not considered credit under Truth in Lending.
    Mr. Bachus. So it is not considered a loan?
    Mr. Ireland. It is not considered a loan under Truth in 
    Mr. Bachus. Is it considered a penalty under Truth in 
    Mr. Ireland. It would be a fee under Truth in Saving. It 
would be required to be disclosed under Truth in Savings.
    Mr. Bachus. As a fee in the nature of a penalty, I guess.
    Mr. Ireland. I don't know that they have a separate 
classification for fees that are penalties.
    Mr. Bachus. Ms. Feddis?
    Ms. Feddis. Well, what they do, Regulation DD as of January 
1st will require in every statement for NSF and overdraft fees 
to be disclosed, some for the month, and then total for the 
year in every periodic statement. So they will be segregated, 
but they are not identified necessarily as a penalty. They are 
identified as overdraft.
    Mr. Halperin. Mr. Bachus, if I can provide some clarity to 
Mr. Ireland's statement, the banking regulators have said 
clearly that when an overdraft is paid, credit is extended. But 
they said it isn't a finance charge under the Truth in Lending 
Act because of various restrictions. So it has been called 
credit, but not a finance charge, which means it is not credit 
under the Truth in Lending Act, as Mr. Ireland said.
    Mr. Bachus. So it is sort of an in-between type.
    Mr. Ireland. They have called it credit for the purpose of 
the credit discrimination laws.
    Mr. Bachus. All right. Let me say this. One of the problems 
that I am having, and I don't speak for anyone else, is there 
seems to be some confusion on the part of the industry on what 
happens today and what your capacity is, whether or not you can 
tell people at the point of sale. And is may depend on the 
agencies. But I think that is a problem that we are having.
    Ms. Feddis. Congressman, there is a distinction between 
opting out as a general opt-out, telling the bank, I don't want 
you to pay any of my overdrafts. There is another distinction 
between declining a debit card transaction at a point of sale, 
just straight-line decline, yes, no. And then there is a third 
option, which is at the point of sale, to say proceeding with 
this transaction will cause an overdraft; would you like to 
proceed? And I think that is what you are talking about.
    GAO has looked at this in a study that came out, and it has 
been suggested. Technically, you can do it, I suppose you can 
do anything, but it would be a huge cost. Every point of sale--
    Mr. Bachus. Well, yes. I think there is a difference in it 
being a cost and it not being possible.
    Ms. Feddis. The New York subway is a lovely system and 
everything, but if you are--
    Mr. Bachus. I understand. Because of our--and this is, 
obviously, as all you on the panel know, we lack the expertise 
that you have.
    Ms. Feddis. I would never say that.
    Mr. Bachus. Well, I can. It is true. Let me say this, when 
we passed the credit card bill, some of us knew there would be 
some consequences, that in a few months, people would get 
notices that their interest rates are going up or their credit 
limit is going down. And it is a good thing in some respects. 
It stops some practices that probably should have been stopped.
    But there is always a negative. And I will tell you this 
when, let me close with this. There is going to be--and the 
consumer groups and I am convinced you have the public interest 
at heart. And I do believe the banks and the credit unions--the 
banks are different from the credit union; there are for-profit 
institutions. So I think there is a difference, although some 
of the credit unions do make quite a good profit.
    But no matter whether you are a consumer group or a 
financial institution, I can tell you that having overdraft 
privileges, not having them and bouncing a check is infinitely 
a worse consequence that I am not sure that most people 
appreciate. For people who have money, it is an embarrassment, 
and it has negative consequences. But for people who are short 
on cash, it can land them in jail.
    Mrs. Maloney. The gentleman's time has expired.
    Mr. Bachus. Let me just have an additional 30 seconds with 
unanimous consent.
    Mrs. Maloney. You have taken over a minute-and-a-half. And 
so I grant you another 30 seconds. That is now 2 minutes over.
    Mr. Bachus. Let me just say--you issue a worthless check, 
you get a warrant issued against you. It goes on your record. 
There are some pretty severe ramifications. And I am not sure 
that the general public realizes that because they have had 
overdraft privileges. I am not saying that it was very costly--
it encouraged a lot of--that it was to their benefit but to 
issue worthless checks has terrible ramifications.
    Mrs. Maloney. The gentleman's time has expired.
    And certainly the intent of the legislation is not to take 
away any services from consumers but allowing them to decide 
which services they want. For example, there could be 
alternatives, such as a line of credit. Some people may decide 
that they would like the overdraft protection, but others do 
    I would say that one of my bills, which was very hotly 
contested by the industry at one point, was merely a notice at 
ATM machines that there was going to be a charge, $1.50 charge 
or whatever the charge was, so that consumers would opt-in and 
say, yes, I want that service. And it now is the law, and at 
every ATM machine, they let the consumer know that they will be 
charged for the service if it is not their home bank. I very 
gladly pay this fee when I am in Washington so that I can 
access my bank.
    We are just saying, for the services that you provide, let 
the consumers know and let them decide whether or not they want 
the service. And if they want to pay $35 for every overdraft, 
then let them opt-into the program for the service.
    Mr. Cleaver is recognized for 5 minutes.
    Mr. Cleaver. Thank you, Madam Chairwoman.
    Let me just start off with this. Will all of you who 
support this legislation just raise your hands? Okay. Let me 
just, before Thanksgiving, express appreciation to all of you 
who oppose the legislation. Those who oppose the legislation 
are really helping me, and I appreciate it.
    The banks right now are preventing the Nation's ire from 
falling on Members of Congress. I think as long as you can 
continue to do this, it helps us. Thank you. You successfully 
bypassed us as the most hated group in America, and I think 
that just personally, I want to express appreciation.
    Do those of you who oppose the legislation believe that 
what is going on, what the overdraft policy is, is the morally 
right thing to do?
    Excuse me?
    Mr. Menzies. Could you restate your question? Did you ask, 
Congressman, if we believe that it is immoral to offer 
overdraft protection services to our customers?
    Mr. Cleaver. Yes, I guess you can rephrase it that way.
    Mr. Menzies. I would respond to you that it is not only not 
immoral; it is fair, reasonable, responsible relationship 
customer-driven, based on taking risks with people whom we know 
and we live with and we see in our bank every single day.
    Mr. Hunt. And I do believe it is the right thing to do, to 
do everything we can to make sure a person is able to pay their 
house note, to pay their car note, to purchase food at Burger 
King using a debit card.
    Mr. Cleaver. So you are able in realtime to tell a person 
whether or not he or she has money in the bank and give them 
the opportunity to withdraw their transaction, but you don't do 
it because you make money, and that is the right thing to do?
    Mr. Hunt. That is not--being able to tell someone's balance 
in realtime is not entirely correct. There is only one person 
who knows how much money you have in your account, how many 
checks you have written, how many items you have actually 
purchased. Just because a person is authorized to purchase an 
item, it doesn't mean they actually purchased it. And we try 
and provide technology so you have the right information, 
possibly on your Blackberry right now, you can find out your 
account balance.
    Mr. Cleaver. So when someone uses a debit card at Macy's, 
and Macy's runs the check through the machine, you are saying 
that the machine cannot tell Macy's whether or not the person 
seeking the transaction does in fact have money in the bank?
    Mr. Hunt. What that machine would tell the merchant is that 
this person is authorized to make a transaction.
    Mr. Cleaver. That is not what--no.
    Mr. Hunt. The answer to your question is ``no.''
    Mr. Cleaver. No, you didn't. You answered somebody else's 
question because the question I am asking is--the bank has the 
ability in realtime to say whether or not there is money in the 
bank, right?
    Mr. Hunt. The bank has the ability with--if the merchant 
has the technology--that is another thing we haven't discussed. 
We don't know if the merchant has the technology. It is not a 
    Mr. Cleaver. I know you think you are answering my 
question, and I don't like to--
    Mr. Hunt. I am just trying to answer.
    Mr. Cleaver. And you are a nice person. What I am saying 
is, you are not answering the question. Let me just--if I am 
walking into Macy's and write a check, and they run it through 
the machine, will the merchant see that I have money to make 
the purchase?
    Mr. Hunt. Not at all times, no, sir. They don't. Sorry.
    Mr. Cleaver. What do they see?
    Mr. Hunt. They run the debit card through their machine.
    Mr. Cleaver. What do they see?
    Mr. Hunt. They don't see anything. They just look at the 
cash register and see if you are approved or not approved for 
this transaction. They don't see that you have $123.
    Mr. Cleaver. No. Okay. But what does the bank see?
    Mr. Hunt. The bank sees a request from the merchant for a 
certain amount of money. The bank has already basically 
predetermined whether you are going to be eligible to make a 
purchase or not.
    Mr. Cleaver. So the bank doesn't pay any attention to what 
your balance is? They make a predetermination that whatever 
comes through here, we are going to pay?
    Mr. Hunt. Here is what the bank has done. The bank has 
looked at your history. They have looked when you are going to 
get paid again, and they are going to see if you are a good 
customer of the bank. And if they have seen, sir--
    Mr. Cleaver. In a matter of 5 or 10 seconds, the bank is 
going to look at your history, look at whether you treat your 
dogs nicely? All of this?
    Mr. Hunt. We do that every day, sir, every day.
    Mr. Cleaver. In 5 seconds?
    Mr. Hunt. Sir, they do it all the time based upon your 
    Mr. Cleaver. I would love to take some cameras from news 
agencies, go in the bank with you, and see that happen.
    Mr. Hunt. Sir, we would love to host you in your district 
to show you what a bank goes through every day.
    Mr. Cleaver. Would you host me and some national television 
cameras to come in the bank and do that? I think we can solve 
this problem and kill Mrs. Maloney's bill. All we have to do--
let me have somebody in Macy's. I am with you and the cameras 
and we are on TV right now--we have a chance right now to fix 
this deal. We are going to fix it. Do we have an agreement?
    Mr. Hunt. Oh, yes, sir, we have an agreement.
    Mr. Cleaver. We have an agreement. I am through--I am going 
to work this out.
    Mrs. Maloney. Mr. Perlmutter is recognized for 5 minutes.
    Mr. Perlmutter. I am not sure how to follow that. I think--
and I agree with Mr. Posey. I just appreciate the panel's 
testimony today.
    There have been different opinions, some very strong 
terminology, strong feelings, strong ideas.
    And the underpinnings of all of this are, allow business to 
engage in commerce, expect people to act as adults and have 
personal responsibility.
    But then within the Constitution, we understand there are 
limits to that, and we have the bankruptcy section of the 
powers given to the Congress, and we have no involuntary 
servitude. So there is an understanding by the Founding Fathers 
and Mothers that people can overdo it, too, that they don't--
they are not going to become indentured servants.
    So what we have here is really a benefit, and Mr. Bachus 
and I were talking about it, which is to cover overdrafts so 
that people don't get bounced checks, don't get treble damages, 
don't get potential warrants, don't get denied in bankruptcy to 
try to get rid of that particular debt.
    But on the other hand, these things get to be very 
seductive and can really run up--Ms. Bloom, I think you gave 
some anecdotes.
    And Mr. Hunt, I know you objected to anecdotes.
    The trouble is, Mr. Bachus says we may not have much 
expertise, but I can tell you we have a lot of experience. And 
my experience with my daughters--I have my nephew here today. 
Now, thank goodness, he can do a little better than at least 
one of my daughters has done. But the anecdotes there are a 
$6.50 cup of coffee at Starbuck's. She had $4.50, apparently, 
in her account; $2 overdraft, $35 charge. And if it had only 
happened a few times, that would be great. So we said, no more 
of this; you have to be on a cash and carry.
    My youngest daughter, she is cash and carry. It has been 
very successful for her. My middle one, though, we went back 
and said, can we get a line of credit for $1,000 so that this 
doesn't happen? They said, no, she doesn't qualify for a $1,000 
line of credit, but we will give her an $8,000 credit card. 
    So we have to watch the practices here. And I guess my 
question really does come back to point of sale, because it 
seems to me that debit cards really are becoming the 
convenience, but people are paying for that convenience. What 
started out as a courtesy becomes a profit center. And this 
happens in all kinds of businesses, not just banking. But we 
have to watch so that the Abby Perlmutters of the world aren't 
always paying that $35 fee and can never catch up.
    So, Ms. Feddis, I appreciated your testimony. I think 
really Mr. Cleaver's questions about, can we address this--let 
us say, in my family, we say, no, if you don't have any money, 
boom, that debit card, it just stops; you are going to be 
embarrassed. Or at that point of sale, yes, you are going to 
overdraw, and you are going to pay a fee; do you really want to 
do that? I want to know, do we have the capacity? Is the 
technology there to do that?
    Ms. Feddis. Certainly, the capacity to opt-in when you open 
the account or at some point, that is certainly something that 
is doable. With regard to giving somebody the option at the 
point of sale, that technology, as the GAO found as a practical 
matter, isn't really available. It would require upgrading or 
replacing every point at the millions of point of sale 
terminals. It would require going into the networks and 
creating extra tracks. I am not an operations person, but you 
would have to do something to be able to carry--to have the 
capacity to carry that extra information.
    In your case, it is probably just better if that person 
opts out and says, I don't want to ever have my debit card 
turned down. To the degree the bank knows that there are 
insufficient funds, even with debit cards, it is not a realtime 
situation. There will still be debit card transactions that 
will overdraw the account that the bank can't stop.
    Part of that is the exact sort of transaction you are 
talking about. Small dollar transactions, a lot of times the 
merchants, to save time and money, they swipe the card to 
ensure that it is a good card, but they don't actually take 
that extra step to ensure--to get an authorization from the 
bank, and the bank doesn't learn that you have drunk that 
coffee until the next day. And as a practical matter, they 
can't return it at that time.
    So those--but you could still--the bank could say, no, to 
the degree we stop them, and we just won't charge you, that is 
probably what your daughter should do, is just opt-out of the 
whole thing. Doing it each transaction is probably as a 
practical matter just not doable. GAO did look into that.
    Mrs. Maloney. The gentleman's time has expired.
    And within the bill, there is another study required to 
look at point of sale and how the technology is progressing to 
allow us to do that. At one point, they did not have the point 
of notification on the ATM machines. Of course, now, they do. 
So we will look at it and go forward. Mr. Royce is recognized 
for 5 minutes.
    Mr. Royce. Yes, thank you, Madam Chairwoman.
    I would like to go to Mr. Dollar because he is the former 
chairman of the National Credit Union Administration. So he 
would know something about how regulators look at this 
situation of having customers who routinely commit over--who 
are basically underwater or creating risk. If it is the case 
that the regulator forces the institutions to set aside 60 
percent in these cases to handle those accounts, to handle 
individuals with this proclivity to overdraft their accounts, 
wouldn't that imply that there is some risk involved for the 
    Mr. Dollar. There is no question, Congressman, that there 
is risk. And that is the reason why the regulators allow the 
institutions to be able to not only charge the fee, but require 
them to reserve 6, 7--not 60, but 6, 7 or 8 percent, 
    Mr. Royce. So it is 6, 7 or 8 percent.
    Mr. Dollar. On average, some as little as 5 percent. 
Perhaps some as much as 10 percent. But, yes, there is risk 
there in answer to your question. And that is why the 
regulators do require that. And as I said in my testimony, 
perhaps it is because I am a former regulator, but I believe 
that the best arena to deal with abuse in this issue is through 
the regulatory arena, rather than statutorily. I think that it 
is able to reflect--the regulations are able to reflect the 
changes in the marketplace, the changes in technology, the 
changes in just the consumer perceptions of these issues as 
they move forward. I think the Federal Reserve and the Federal 
Financial Institutions Examination Council have taken the lead 
on this. They are taking it seriously, and I think that their 
new rules and guidelines, their regulatory requirements should 
be allowed to work.
    Mr. Royce. I guess the question--if the credit union is 
only going to be able to pass on the cost of processing the 
transaction and if you have an 8 percent cost in terms of the 
risk, why would they ever offer the overdraft protection? 
Because they would be bearing the risk that a customer will not 
settle their balance, basically 8 percent of the time on 
average, and they can't be compensated for assuming that risk. 
So they would be better served by ending the overdraft 
protection under that scenario.
    Mr. Dollar. I think that for many of those members who were 
mostly to take a loss, they would simply close their accounts. 
So there would be a ramification for them.
    But another point here quickly on bringing this under Truth 
in Lending that has not been discussed today is that federally 
chartered credit unions have a statutory, again, a problem of 
the statutory requirement, rather than leaving it regulatory, 
have a statutory 18 percent usury cap. Therefore, if you were 
to place overdraft protection under Truth in Lending, every 
Federal credit union in the United States of America would not 
be able to approve 6 per year as the law indicates. When they 
approved the first one, they would be in violation of the 
Federal usury laws. So there are unintended consequences that I 
think have to be taken into consideration with this 
    Ms. Fox. Mr. Royce, may I add to that?
    This bill specifically excludes the credit union usury cap 
for coverage under this bill. The bill requires the Federal 
Reserve to take into consideration what it costs for a 
financial institution to pay an overdraft when they set the 
guidelines for what is a reasonable fee.
    Mr. Royce. Right. And I am looking at the risk element of 
this, and I am wondering, at the end of the day, why would 
banks and why would credit unions really continue to offer 
these programs if on the risk side, you are not able to be 
compensated for assuming that risk? And I guess the thought I 
have in this is, what is likely downstream? If you do have that 
action out of banks, credit unions, then the loser is going to 
be the type of individual who would most be likely to utilize 
routinely overdraft protection; who would be the type of 
individual who might not notice the accelerator clause in his 
mortgage, and suddenly he doesn't have that overdraft 
protection anymore, and now he has been late on his mortgage 
check, or he is the type of individual who is going to end up 
being dinged not by only the merchant and the bank but, in the 
most egregious cases, by the district attorney as well. He is 
going to have all of these charges to bear because we have 
created a scenario where the banks and the credit unions are 
not going to offer the overdraft protection or are going to 
close the account.
    Mr. Dollar?
    Mr. Dollar. The regulators see the benefit. They also see 
the risk. That is why they are regulating it. They are 
regulating it, I think, very well. There is certainly some 
additional scrutiny that should come. We have discussed some of 
those aberrations here. They are, however, the exception rather 
than the rule. But there is risk. There is moral hazard in not 
finding a way to discourage the writing of bad checks, and 
there are the additional costs that you have mentioned, 
Congressman, that are very real.
    And that is the reason why there is some disconnect when 
folks say that consumers do not like this product, but yet the 
financial institutions are making a lot of money on it. Some 
way or another, there must be some consumers seeing some value 
in this product or else they would not be the earnings that 
there is. The answer, again, is disclosure and making sure 
those members know, through financial education and through 
proper disclosure, how this program works and have the right to 
opt-out of it if they do not agree.
    Mr. Royce. Thank you, Madam Chairwoman.
    Mrs. Maloney. Mr. Himes, for 5 minutes.
    Mr. Himes. Thank you, Madam Chairwoman. I want to follow up 
on something Congressman Perlmutter said, the sort of concept 
of the profit center. I think we have four CEOs, presidents of 
banks and credit unions. Could I ask you each to quickly give 
me a sense for what the profitability of the overdraft business 
in fact is? And I am happy to take an answer in terms of return 
on invested capital or margin or whatever makes sense. I am 
also happy to take an estimate. Can we just start with Mr. 
Staatz, I guess?
    Mr. Staatz. I don't have those numbers with me here today, 
but a part of our--in our charge is not to cover costs; it is 
also somewhat of a penalty to try to discourage people from 
using it.
    Mr. Himes. Mr. Blaine?
    Mr. Blaine. Congressman, the profits are obscene. And I 
will give you an example. If these fees were correctly 
disclosed under Truth in Lending, everybody agrees that their 
interest rate would be at about 300 percent. Even with a 10 
percent write-off, as Mr. Dollar just mentioned, the return to 
the banks and credit unions is 270 percent. This is a no-lose 
proposition for the banks; a definite loss for consumers.
    Mr. Himes. Mr. Colley, do you have a margin or return on 
investment capital number for me?
    Mr. Colley. I don't have that information with me, sir. I 
would be happy to get it to you later.
    Mr. Himes. Thank you.
    Mr. Menzies?
    Mr. Menzies. Congressman, we measure profit based on return 
of total relationship, not just of the payor overdraft 
protection programs, the total relationship. All loans, all 
deposits, the total relationship.
    Mr. Himes. But surely you break these businesses out, you 
need to be able to evaluate their relative profitability. You 
break them out, no?
    Mr. Menzies. I hate to admit, at a $150 million bank, we 
don't run ROE, ROA returns on specific products. I am sure we 
should, but we don't. We look at the relationship, the total 
profitability of the relationship.
    Mr. Himes. I am really not trying to make a point here. I 
was just curious about the profitability. I think if the four 
of you would be willing to follow up with just your best 
estimate of how profitable a business this is within your 
institutions, it would be, I think, very helpful to us.
    Look, philosophically, I tend to believe that if you have 
good disclosure and smart choices being made, that we should be 
very light-handed with respect to what products are offered. 
This is a special case, though, because it represents a moment 
in which a household or an individual transitions from having 
assets to having liabilities. And we had a pretty 
unenlightening discussion down here and in the media about what 
caused the meltdown we are in right now.
    Everybody blames it on CRAs, Fannie Mae, or the investment 
banks. And there is a grain of truth in much of that. And the 
reality is, of course, we have all sorts of factors. What we 
don't talk nearly enough about is the incredible increase in 
leverage in the American household. You know the numbers. The 
last 20 years, most households moving from net asset positions 
to very substantial leverage. And that makes all the difference 
as we go into one of these things.
    And again, I appreciate that if you have--Mr. Dollar, you 
say if you have good disclosure and good decisionmaking and 
conscious decision making in the face of perfect information, 
fine. But here is the moment where somebody's account goes 
below zero, and they are now going into debt. So I think we 
have a public interest, given how important the leveraging of 
the American household, the irresponsible behavior--I am not 
blaming you--the irresponsible behavior of many American 
households in accumulating a lot of debt, using homes as ATM 
machines, etc.
    These products can facilitate that. And so despite my 
philosophical leanings, I do want to look hard here. And my 
question is, why not an opt-in? Let us give everybody perfect 
information and let them make an affirmative choice, and if 
they have gotten that information, good disclosure, make an 
affirmative choice. I don't get the opposition to that because 
opt-out we all know. We all live enormously busy lives. We all 
know that moment very rarely presents itself where you say, 
from 10:30 to 11:00, today, I will read my agreement with my 
bank, and I will make an affirmative choice. That just doesn't 
happen. Why the opposition to opt-in?
    Mr. Staatz. Congressman, we don't have opposition to opt-
in. Certainly on a go-forward basis. As a matter of fact, it 
would merely put into place what most credit unions do anyway.
    Mr. Himes. Does anybody oppose opt-in? I saw in the 
testimony here.
    Mr. Dollar. Congressman, I contacted and have over the last 
several months when all this publicity came, about a number of 
the credit unions that I work with, and there is not a credit 
union that I had spoken with that has a problem with opt-in 
going forward and a very well disclosed opt-out option for 
existing accounts. I think that opt-in going forward would be 
very well received by responsible financial institutions.
    Mr. Blaine. Congressman, our organization manages 800,000 
checking accounts for individuals. We offer only opt-in. We 
have for over 25 years; 80 percent of our members are covered 
by overdraft by their choice. They are allowed to use their 
other savings, other checking, money markets, CDs, credit card, 
line of credit, whatever. Every one of those choices is wildly 
less expensive than overdraft that is being proposed. And the 
only people that we cannot qualify for reasonable overdraft 
protection are those who are not credit worthy. And those are 
the people who are most often taken advantage of by courtesy 
    Mrs. Maloney. The gentleman's time has expired.
    Some members have asked for a second round, so I am 
recognizing myself for 5 minutes.
    And I would like to ask Jim Blaine--I am really struck and 
fascinated by your fee structure for your credit union. In your 
testimony, you note that you charge 50 cents to transfer funds 
for overdraft protection. And in the Overdraft Protection Act, 
there is language that says that financial institutions can 
only charge fees that are reasonable and proportional to the 
cost of processing the transaction; 50 cents seems to me to be 
very reasonable compared to a $35 fee that many financial 
institutions charge for the same service. Can you tell us how 
your credit union arrived at the 50 cent figure?
    Mr. Blaine. Madam Chairwoman, it is a sophisticated process 
that we employ. Actually, it is a nuisance fee. We would rather 
that our members do it for free by going online, so we have 
very conservative, careful members, and believe it or not, many 
of them will do it themselves to avoid that 50 cent fee. But in 
an automated world, the incremental cost of doing those 
transfers is a matter of pennies. It covers our costs easily.
    Mrs. Maloney. Well, thank you.
    Then the difference between a 50 cent fee and a $35 fee is 
obviously very, very striking. So why do you think there is 
such a huge difference between the credit union practice and 
one that serves its customers very well--you said you had 
800,000 customers you said or 800,000 customers--and the 
practice of larger banks to charge an average of $35 fees?
    Why do you think there is such a large discrepancy, Mr. 
    Mr. Blaine. Madam Chairwoman, I believe that is why we are 
here today.
    Mrs. Maloney. That is why we are here today.
    Mr. Blaine. But I would say, going back to a previous 
question, if they offered courtesy overdraft at Burger King, I 
think the question would be, where is the beef?
    Mrs. Maloney. Okay. I would like maybe Ms. Feddis to answer 
or Ms. Fox.
    Ms. Feddis. I think I might be confused. The 50 cent fee 
isn't for the overdraft. Is that correct? Or is it for 
transferring money from a savings account, which is very 
different? Many banks do that for free. Usually, it is $5 or 
$10. You can pay somebody to make your coffee, or you can make 
your coffee yourself. So with the banks in terms of 
transferring funds from the savings account to the checking 
account, sometimes that is for free in some banks; sometimes it 
is $5 or $10.
    Mr. Blaine. Madam Chairwoman, Ms. Feddis has caught me. The 
50 cents is a transaction fee. The cost of the overdraft is 
    Mrs. Maloney. The cost of the overdraft is zero. Okay. It 
is a transaction fee. The cost of the overdraft is zero. So 
there is a big difference between a zero and a $35 fee.
    Ms. Fox, would you like to comment on it? Or Mr. Staatz and 
    Ms. Fox. The larger banks charge $10 to transfer your own 
money from your savings account into your checking account to 
cover an overdraft and if I recall correctly, your bill would 
have the Federal Reserve look at whether that fee is also 
reasonable and proportional because that makes even covering 
your overdraft with your own money still a fairly expensive 
    Mrs. Maloney. Mr. Staatz?
    Mr. Staatz. I wanted to just clarify, for example, we don't 
charge anything when you are transferring your own money. And 
as others--some of the credit unions--as Mr. Blaine does, may 
charge 50 cents or a little bit more, but we don't charge 
anything for your own money.
    Mrs. Maloney. For your own money.
    Mr. Menzies or Mr. Hunt, would you like to--
    Mr. Hunt. Sure, I would, Madam Chairwoman.
    Mrs. Maloney. Why is there such a large difference, a 
discrepancy between a 50 cent transfer, a $10 transfer, a $35 
overdraft fee?
    Mr. Hunt. Sure, Madam Chairwoman. I will also tell you that 
I have never heard of any of our banks charging you money to 
transfer your own money from one account to another. I am a 
little bit confused by the gentleman to my right about whether 
that is a line-of-credit fee or a strict overdraft fee. Same 
thing here. If you do have a line of credit with one of our CBA 
bankers tied to your savings account, we charge a minimal fee 
of probably $3. Many of our banks charge zero if you have that 
line of credit.
    Mrs. Maloney. Would you like to clarify for him, Mr. 
    Mr. Blaine. I am not certain what the question is. The only 
overdraft or NSF fee we have is a $12 NSF fee that has been the 
same fee for over 20 years. And it is more than sufficient to 
cover not only our processing costs but all the fraud and other 
losses that are incurred in our 800,000 unit checking program.
    Mrs. Maloney. There seems to be a huge discrepancy between 
some institutions and others. And I thank you very much for 
your service to your customers, Mr. Blaine.
    The Chair recognizes Mr. Green for 5 minutes. My time has 
expired. Excuse me. Mr. Posey.
    Mr. Posey. Thank you, Madam Chairwoman. There is definitely 
some good stuff in this well-intentioned legislation that is 
being proposed and worthy of further consideration for sure. 
But some of this stuff that gives me reason for pause, for 
example, is, under Part J, a depository institution may charge 
not more than 1 overdraft coverage fee in any single calendar 
month and not more than 6 overdraft coverage fees in any single 
calendar year per transaction account. You wonder what would 
happen then if somebody had 12 overdrafts in a year, 6 of them 
were free; would they take that maybe as an inference that they 
don't need to pay it or they shouldn't be responsible for it?
    And the question that begs for an answer is, who would, 
even if the fee was exactly matched to the loss and to the 
administrative cost, who would then pay for the abuse, the 6 
abuses that were not allowed to be charged back to this 
customer? And I am afraid the answer is the 99 percent of the 
customers who do not abuse the privilege of having a checking 
    Stealing is still stealing. I hope Congress is not trying 
to change that fundamental right. When you tell somebody, you 
give me this and I will pay you for it, and if you don't do it, 
that is called theft. If it happens at McDonald's or Burger 
King or anywhere else, you make an obligation; there is a moral 
obligation, I think we all believe, to hold up your end of the 
    And if I get you to loan me money and then say that I am 
going to pay you back and I don't in fact do it; if I give you 
a bad check, that is stealing. And there have been penalties 
for that, I am sure, in every State and severe penalties where 
the amounts are severe. So I hope that Congress is not trying 
to and cannot minimize the necessity of having responsibility 
to pay your debts.
    And I hope that we are not trying to, by lowering the 
consequences in the interest of consumer protection, we are not 
trying to lower the consequences of bad behavior, which is what 
caused us to be in the major economic recession that we are in 
now. Sometimes, the cure is worse than a disease, and I wonder 
if some components here are not a cure in search of a disease.
    It is laudatory that Mr. Blaine has 80 percent of his 
customers signed up for overdraft protection. That leads me to 
suspect that most consumers enjoy knowing that if they should 
inadvertently--hopefully--make a mistake and can't cover their 
last check, that there will be an opportunity for the 
institution to step up. I would be interested in knowing how 
often you have to exercise that overdraft protection.
    Mr. Blaine. Congressman, I agree with you.
    The essence of our program is, it is an opt-in, and as you 
say, if you give the consumer a choice, they will make the 
right decision. But giving them the choice is very, very 
important. We have about 9,000 potential overdrafts every day. 
So it is a very, very large number, and if you would multiple 
that by $35, then you understand what is at risk in terms of 
income to institutions, why there is such a strong discussion.
    One other point, in terms of the number of once per month 
or 6 per year, as I understand this legislation, you are trying 
to strike a balance between the number and the proportional 
fee, and the truth is somewhere in between. But you have to 
keep the two together when you do the legislation to make it 
more reasonable.
    Mr. Halperin. Congressman, if I could add, under the 
legislation, there is no requirement that institutions continue 
to cover any transactions after the sixth limit. So in response 
to your question about whether institutions would be forced to 
cover transactions without a fee, the legislation would allow 
institutions then to deny those transactions, which I think is 
a more effective deterrent and a more effective encouragement 
for personal responsibility, which you have called for today, 
than allowing transactions to go forward without a fee.
    The most effective deterrent is denying the transactions. 
And at six--under the current system, there seems to be a 
misunderstanding that the current system actually covers all 
payments. In fact, even under the current e-based overdraft 
system, people do get denied if they reach their maximum limit 
on a negative. For example, some banks have a negative $500. 
And that could just as easily be your mortgage payment or your 
rent payment or that important thing, and you were driven down 
there by your small debit card. So we are not in a world now 
where everything gets paid. But just to be clear, the bill 
certainly does not require institutions to continue to pay and 
not charge a fee.
    Mr. Blaine. Congressman, we very much support personal 
responsibility, too. We are all fully behind it. One of the 
innovations we are adding later next year is we all have mobile 
phones now, cell phones, smart phones, and we will actually 
text our members early in the morning. We process at night. And 
we know if there is a potential overdraft, and we will contact 
you if you are a member and say you need to come see us before 
5:30 to give them a second chance because it is a very busy 
world, and most folks will do the right thing and come in and 
avoid those fees. If not, we have no compunction about 
punishing them severely.
    Mr. Posey. Do you find competitors following your business 
    Mrs. Maloney. The gentleman's time has expired, and he is 
granted an additional 30 seconds for Mr. Blaine to respond.
    Mr. Blaine. I think banks and credit unions are good 
people, and they do want to serve their customers and members 
well, and as these technologies become available, they will try 
to help their customers and members.
    Mrs. Maloney. Thank you very much.
    And Mr. Green is recognized for 5 minutes.
    Mr. Green. Thank you, Madam Chairwoman.
    I concur with Mr. Blaine. I think that banks and their 
employees are good people, and I sincerely do believe that you 
want to serve your customers well.
    I do note, however, that the interests and fees that were 
at one time charged on one check, as I understand it, perhaps 
one, and correct me if I am not correct, at one time you would 
pay not only the fee but the money that was placed in your 
account, you paid interest on that as well. Is this true?
    Ms. Fox. In the way the big bank fee-based overdraft works, 
if they permit an overdraft--
    Mr. Green. Excuse me. Let me intercede because time is of 
the essence. I believe Ms. Feddis broached the issue when she 
explained that the Fed no longer allows that.
    Is this true, Ms. Feddis?
    Ms. Feddis. No longer allows what, sir?
    Mr. Green. No longer allows a fee as well as interest on an 
    Ms. Feddis. I didn't say that, sir.
    Mr. Green. You did not? What did you say? I am sorry then.
    Ms. Feddis. I have said a lot. I often repeat myself.
    Mr. Green. I know you did, but let us just focus on this 
one area.
    Ms. Feddis. Can you ask the question again? I am not sure 
what you are talking about.
    Mr. Green. Let me ask the question. If you have an 
overdraft and there is a fee paid, let us say $35, and ``X'' 
number of dollars are placed in the account, do you get 
interest on the ``X'' number of dollars as well as the $35 fee?
    Ms. Feddis. Interest on the $35 fee.
    Mr. Green. The money that is placed into the account to 
cover the overdraft.
    Ms. Feddis. At that point, it would be just to bring the 
balance to zero. So there wouldn't be any interest paid.
    Ms. Fox. No. It is just a fee. But a lot of the banks 
charge a second fee if you have not paid for the overdraft and 
the overdraft fee in 3 to 5 days.
    Mr. Green. Let us take this example. This will help. Let us 
assume that you--that $100 is required to go into your account 
to cover the overdraft amount. A fee of $35 is imposed. On that 
$100, do you pay interest?
    Ms. Fox. No. No, sir.
    Mr. Green. Did you ever pay interest? Did banks ever have 
the option of charging interest on the $100?
    Ms. Feddis. That is in the checking account?
    Ms. Fox. Only if they had an overdraft line of credit where 
they were charging interest on the amount that you borrowed. 
And typically banks charge about 18 percent annual interest if 
you cover an overdraft with a line of credit.
    Mr. Green. Ms. Feddis, you were about to--
    Ms. Feddis. I think we are getting there. The line of 
credit, if that is used to cover the overdraft, interest will 
be charged on that line of credit. If it is covered by an 
overdraft with an overdraft fee, there wouldn't be interest 
    Mr. Green. And there has never been an instance or 
circumstance at any point when banks were charging both the fee 
and the interest?
    Ms. Feddis. Not that I am aware of, if I understand the 
    Ms. Fox. There are a few banks that charge a transfer fee 
for you to access your line of credit, and in that case, you 
would pay a flat dollar fee plus the 18 percent interest.
    Mr. Green. So you pay the transfer fee?
    Ms. Fox. But it is not as big a fee. It is just a transfer 
    Ms. Feddis. That is also, again, the line of credit, not 
the overdraft. We are talking about two different products.
    Mr. Green. Right. If you have a line of credit, the line of 
credit charges you, and then you pay the overdraft fee as well.
    Ms. Fox. No. Transfer fee.
    Mr. Green. Transfer fee. How much is a transfer fee versus 
the overdraft fee?
    Ms. Fox. For the largest banks, transfer fees start around 
$10, and the overdraft fees are $35 for the initial overdraft; 
at some banks, $35 in another few days.
    Mr. Green. Mr. Blaine, if I may, you charge 50 cents for 
your transfer fee?
    Mr. Blaine. That is correct. And to finish out your 
thought, it may go to our members' Visa card with the credit 
union on which we charge 9.7 percent. So we do not charge an 
overdraft fee because we are charging interest on the line of 
    Mr. Green. Somebody else wants to speak.
    Mr. Hunt. We have to make this point very clear. If you 
have a line of credit, you do not pay an overdraft fee. That is 
why you have the line of credit. That is the beauty of a line 
of credit; there is no overdraft fee. So some banks do charge 
anywhere from $3 to $10.
    Mr. Green. Can I just intercede? The lack of beauty is that 
you charge a transfer fee when you are charging me to take 
money out of one account that I have and place it in another 
account that I have. Do you find beauty in that as well?
    Mr. Hunt. I do in the fact that it is better than paying 
the $35 fee in that we had to set that up for you and there was 
expenses behind the initial setup.
    Mr. Green. So you--
    Mr. Hunt. The beauty would be if you transferred money 
before you had an overdraft. That would be the beauty and there 
would be no charge for that.
    Mr. Green. That would be the beauty it of. But then if I am 
not aware, and I should be--I guess sometimes you don't know 
when you need the help and you render the help. But--
    Mr. Hunt. And I have needed help before.
    Mr. Green. So have I. So have I.
    To close, let me share this with you. I don't find 
overdraft fees to be repugnant, per se. My concern is that you 
don't give the consumer the notice. I think notice is important 
to consumers, and if we can get the notice--notice--assuming 
that I am about to go into overdraft, if you can give me the 
notice at that point--remember the statement about being in a 
bank also with the electronic devices. We can give consumers 
notice so that they can opt-out at that point and say, well, 
look, I really don't want to pay that overdraft fee at this 
point. I happen to have money in my pocket and I will cover it. 
There are all sorts of options available once you know what the 
consequences are. And I find that to be an acceptable solution.
    The final comment would be this. With reference to the 
manipulating of the order of the transactions, do you agree 
that it would be fair not to manipulate the order of 
transactions in an invidious way, such that people find 
themselves, if the order had been in a different fashion, 
wouldn't pay as much?
    Mrs. Maloney. The gentleman's time has expired, but he is 
granted an additional 30 seconds for Ms. Fox to respond.
    Ms. Fox. Absolutely. Consumers think it is just outrageous 
for their banks to order withdrawals in a way that maximizes 
the number of fees. That is viewed as extremely unfair.
    Mrs. Maloney. Thank you. The gentleman's time has expired.
    Reverend Cleaver is recognized for 5 minutes.
    Mr. Cleaver. Ms. Feddis, are you familiar with a recent 
article in USA Today by a consultant advisor to large banks on 
credit cards, Mr. Brad Nickum, N-i-c-k-u-m. He wrote an 
article, and he said, ``profits, not costs generally drive bank 
fees.'' Brad Nickum, consultant advisor to large banks on 
credit cards.
    Ms. Feddis. I would suggest that, for any business, costs 
and profits drive fees. The point of a business is in basic 
business theory that income has to be higher than expenses.
    Mr. Cleaver. No. I am sorry. He is saying that profits from 
these fees, the profits from credit card--that--I am sorry--
that banks charge on overdrafts is what drives--
    Ms. Feddis. I am sorry. I misunderstood. The costs are 
certainly part of it. But part of the purpose of an overdraft 
fee is to serve as a penalty. And like any penalty fee, whether 
it is the IRS--
    Mr. Cleaver. Penalty of what?
    Ms. Feddis. A penalty to encourage people, to get their 
attention and say, please, pay attention to your account.
    Mr. Cleaver. What about slow learners?
    Ms. Feddis. That is a very good point. The vast majority of 
people manage their credit--their checking accounts very well.
    Mr. Cleaver. I am sorry. Mr. Blaine, did you say 9,000?
    Mr. Blaine. Per day. That is correct.
    Mr. Cleaver. That is a lot of folks. That is $315,000 a 
year; $35 per check would be--
    Ms. Feddis. I am just getting to the point that the group 
you are talking about, which is the vulnerable group--most 
people manage it well.
    Some people, as has been discussed today, are deliberately 
using the overdraft as their cash management, particularly 
small businesses because they can't get a loan or they don't 
want to get a loan. They are okay. There may be a vulnerable 
group. So, yes, we should protect them. But maybe we need to 
face the fact that some people maybe shouldn't have a full-
service standard checking account. Maybe they need something 
else that is more suited to them.
    Mr. Cleaver. I agree with you. So why do you let them have 
the checking account and then charge them $35?
    Ms. Feddis. I think what you need is something like a 
payroll card which is very popular with people. The only 
deposit allowed into it is the payroll. They only access it 
through a debit card. It is overseen by the employer. It is 
very popular.
    Mr. Cleaver. So it would work in realtime?
    Ms. Feddis. Well, there will be overdrafts. It won't be for 
the reasons that I have discussed before. There can be because 
it is not possible for the bank to stop every overdraft, and it 
is not realtime, as you pointed out.
    Ms. Fox. Mr. Cleaver, when a bank decides to lend money to 
consumers by letting a debit purchase go through that should 
have been denied for lack of funds, the fee is not a deterrent; 
it is a profit center. If the bank wanted to deter overdrafts, 
they would prohibit a debit card from overdrawing at the point 
of sale or at the ATM machine.
    Mr. Halperin. Mr. Cleaver, if I can just add, we have that 
account, the account you are talking about. It was when the 
debit card didn't allow you to overdraft. So instead of driving 
people out of the banking system by charging high overdraft 
fees, why don't we bring back the debit card as the tool to 
only spend the money you have and give consumers the tool to be 
able to tell that debit card that it can't be turned into a 
credit card?
    Ms. Feddis. But there are times when some people do want 
their debit cards--excuse me.
    Mr. Cleaver. No hitting, no hitting.
    Ms. Feddis. It is okay. They do want their overdrafts paid. 
And give people the choice, as you point out, that, yes, in a 
perfect world, everybody would have enough money in their 
account, but sometimes they don't, and they need the medicine, 
or they want the groceries paid, or they want the meal that 
they just ate to be paid for. So give people the choice. And if 
there is another group that is a small group who is vulnerable, 
let us focus on them, but don't deny everybody else the choice.
    Mr. Cleaver. The choice to pay extra money?
    Ms. Feddis. If it is their choice.
    Mr. Hunt. To cover their bill, yes.
    Mr. Blaine. Representative Cleaver, I hope you have at 
least 8 spaces on your calculator, because 10,000 overdrafts 
times $35 is $350,000 a day. And that is just one of the 
advantages of participating in a credit union when you don't 
have to pay those kinds of fees.
    Ms. Bloom. If I might add, my experience with consumers is 
they get trapped in this cycle and that these--I mentioned some 
examples from stories we have heard, people just get into this 
cycle and it is 7, 8, 11 fees wrapped up within a 2-week 
period. So it is--and they don't really know until it is too 
    Mr. Cleaver. I agree. Because it is similar to Johnnie's 
Check Cashing Company on the street corner.
    Mrs. Maloney. The gentleman's time has expired. I will 
grant him another minute for his closing question.
    Mr. Cleaver. Yes. What I think is difficult to explain is a 
report that appeared in a real estate group's publication where 
a customer with a $500 balance made 4 debits in the following 
order: $15, $10, $150, and $450. Three overdraft fees could be 
charged instead of one by posting the largest transaction 
first, right?
    Mr. Hunt. Yes.
    Mr. Cleaver. Why doesn't that happen?
    Mr. Hunt. Sir, I will tell you this. Of all the issues 
discussed in this bill and in all the meetings I have had 
across the country, the most challenging question that I get 
from retail bankers, especially retail branch managers is, what 
do they post first? If they pay the highest amount, then they 
get criticized for charging overdraft on the three lower 
amounts. If they take care of the three lower amounts but don't 
take care of the mortgage, they get criticized the same way. So 
it is a great question. No one has the solution to it. We do 
ask this of you, if this legislation is enacted, when you write 
the regulations, be crystal clear; what do you want the banks 
to do? Do you want the banks to go high-low or low-high?
    Mrs. Maloney. Thank you.
    The gentleman's time has expired. And the bill is crystal 
clear; it says that the order of checks cannot be manipulated 
in order to get a higher overdraft fee. So it goes with higher 
to lower.
    I would like to thank all of the witnesses. This has been 
incredibly interesting.
    Many members were not able to be here because there are not 
votes today. They are invited to submit their questions in 
writing. And without objection, we will have an additional 30 
days for members to submit questions to the witnesses and to 
place their responses in the record. Thank you again. This 
meeting is adjourned.
    [Whereupon, at 12:33 p.m., the hearing was adjourned.]

                            A P P E N D I X

                            October 30, 2009