[Congressional Record Volume 155, Number 151 (Monday, October 19, 2009)]
[Senate]
[Pages S10521-S10524]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DODD (for himself, Mr. Schumer, Mr. Reed, Mr. Brown, Mr. 
        Levin, Mr. Merkley, Mr. Menendez, and Mr. Reid):
  S. 1799. A bill to amend the Truth in Lending Act, to establish fair 
and transparent practices elated to the marketing and provision of 
overdraft coverage programs at depository insitutions, and for other 
purposes; to the Committee on Banking, Housing, and Urban Affairs.
  Mr. DODD. Mr. President, I rise to introduce the Fairness and 
Accountability in Receiving Overdraft Coverage Act, The FAIR Overdraft 
Coverage Act. The FAIR Overdraft Coverage Act will rein in abusive 
fees, give customers greater choice, and bring

[[Page S10522]]

greater transparency to overdraft coverage programs.
  For too long, some in the financial services industry have gotten 
rich by taking advantage of consumers.
  Earlier this year, in a 90-5 vote, this body passed legislation to 
crack down on credit card companies who were charging excessive fees 
and indiscriminately raising customers' rates. Those practices were 
wrong, and I was proud to lead the charge to put a stop to them.
  Today, I hope to rally my colleagues' support to curtail another 
abusive practice: overdraft fees.
  Let me be clear, people have a responsibility to spend within their 
means.
  However, too often, banks take advantage of their customers under the 
guise of providing the ``service'' of overdraft protection, a service 
that the customer may not want and may not even know has been applied 
to his or her account.
  The Financial Times recently reported that banks stand to collect a 
record $38.5 billion in overdraft fees this year.
  According to the Center for Responsible Lending, nearly $1 billion of 
that will come from young adults.
  Another $4.5 billion will come from senior citizens like Mario 
Livieri of Branford, Connecticut. Mario is a 75-year-old retired 
homebuilder who accidentally overdrew his account by approximately $2, 
and was charged $35 by his bank. The bank took several days to notify 
him that the account was overdrawn, and in the meantime, he made three 
additional minor purchases for which he was charged three additional 
$35 fees--a total of $140.
  When Mario protested, the bank waived one of the four $35 charges. 
They told him there was nothing more he could do to fight the fees, 
because this practice was perfectly legal. Mario Livieri is no longer a 
customer at that bank, and this prevalent practice should no longer be 
perfectly legal.

  Slow-walking notifications to consumers when their accounts are 
overdrawn is just one way in which banks try to run up the score on 
overdraft fees. Sometimes, they even re-arrange the order in which they 
process your purchases, charging you for a later, larger purchase first 
and then they charge you repeated overdraft fees for earlier, smaller 
purchases.
  Worst of all, so-called ``overdraft protection'' is often added to 
customers'' accounts without their permission, or even their knowledge. 
Customers who don't know that this feature is attached to their 
accounts think their purchases will just be denied if they don't have 
sufficient money in their accounts. Instead, their depository 
institutions will let these purchases go through and charge a $35 flat 
fee for each purchase that overdrafts the account--no matter how small 
the purchase. And there generally is no limit on the number of fees 
that a customer can be charged in a single day.
  That is just wrong. Families in my State of Connecticut and across 
the country are already struggling to make ends meet--and these unfair 
and excessive charges are making it even harder. Over the past few 
weeks, I've worked with consumer groups and listened to folks like 
Mario who have been the victims of these abusive practices. Those 
discussions resulted in the bill I present to you today.
  Here is how the bill works.
  First and foremost, no consumer should be enrolled in a program like 
this without their knowledge. My bill will establish an opt-in rule for 
overdraft protection for ATM and debit transactions so that customers 
will have to consent before they can be charged an overdraft coverage 
fee. You will recall that the credit card bill we passed earlier this 
year had a similar approach to over-the-limit fees.
  If you do choose to opt into an overdraft coverage program, the bill 
will limit the number of overdraft fees banks can charge you--one per 
month, and no more than six per year. And that fee will be required to 
be proportional to the cost of processing the overdraft--no more $40 
charges for $2 cups of coffee.
  My legislation will also put a stop to the practice of manipulating 
the order in which transactions are posted, and require banks to warn 
customers if they are about to overdraw their account, giving them a 
chance to cancel the transaction.
  Finally, it will require banks to notify customers promptly when 
they've overdrawn an account--through a means the customer chooses, 
from e- mail to text message to letter--so that they can quickly 
restore their balance and avoid unnecessary fees.
  Abusive overdraft policies are unfair, and the banks know it. After 
it came out in the press that I was working on this legislation, a few 
of the big banks took steps towards responsible reform.
  We will see whether these few are truly committed to reform. 
America's consumers deserve better--and this legislation will make sure 
they won't continue to be victims of greedy banks looking to line their 
pockets at the expense of hard-working families.
  I urge my colleagues to join me and Senators Harry Reid, Charles 
Schumer, Jack Reed, Sherrod Brown, Carl Levin, Jeff Merkley, and Robert 
Menendez in support of this legislation.
  Mr. President, I ask unanimous Consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 1799

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Fairness and Accountability 
     in Receiving Overdraft Coverage Act of 2009'' or the ``FAIR 
     Overdraft Coverage Act''.

     SEC. 2. FINDINGS AND PURPOSE.

       Section 102 of the Truth in Lending Act (15 U.S.C. 1601) is 
     amended by adding at the end the following:
       ``(c) Fairness and Accountability in Overdraft Coverage.--
       ``(1) Findings.--The Congress also finds that--
       ``(A) overdraft coverage is a form of short-term credit 
     that depository institutions provide for consumer transaction 
     accounts. Historically, depository institutions covered 
     overdrafts for a fee on an ad hoc basis;
       ``(B) with the growth in specially designed software 
     programs and in consumer use of debit cards, overdraft 
     coverage for a fee has become more prevalent;
       ``(C) most depository institutions do not notify consumers 
     when adding this feature to their transaction accounts, and 
     some do not permit consumers to eliminate this feature from 
     such accounts;
       ``(D) most depository institutions collect a high flat fee, 
     including for small dollar transactions, each time the 
     institution covers an overdraft, in some cases impose 
     multiple overdraft coverage fees within a single day, and 
     many charge additional fees for each day during which the 
     account remains overdrawn; and
       ``(E) such abusive and misleading practices in connection 
     with overdraft coverage fees have deprived consumers of 
     meaningful choices about their accounts and placed 
     significant financial burdens on low- and moderate-income 
     consumers.
       ``(2) Purpose.--It is the purpose of this title to protect 
     consumers by limiting abusive and misleading overdraft 
     coverage fees and practices, and by providing meaningful 
     disclosures and consumer choice in connection with overdraft 
     coverage fees.''.

     SEC. 3. DEFINITIONS.

       (a) Additional Definitions.--Section 103 of the Truth in 
     Lending Act (15 U.S.C. 1602) is amended by adding at the end 
     the following:
       ``(cc) Definitions Relating to Overdraft Coverage.--
       ``(1) Check.--The term `check' has the same meaning as in 
     section 3(6) of the Check Clearing for the 21st Century Act 
     (12 U.S.C. 5001 et seq.), other than a travelers check.
       ``(2) Depository institution.--The term `depository 
     institution' has the same meaning as in clauses (i) through 
     (vi) of section 19(b)(1)(A) of the Federal Reserve Act (12 
     U.S.C. 461(b)(1)(A)).
       ``(3) Nonsufficient fund fee.--The term `nonsufficient fund 
     fee' means a fee or charge assessed in connection with an 
     overdraft for which a depository institution declines 
     payment.
       ``(4) Overdraft.--The term `overdraft' means the amount of 
     a withdrawal by check or other debit from a transaction 
     account in which there are insufficient or unavailable funds 
     in the account to cover such check or debit.
       ``(5) Overdraft coverage.--The term `overdraft coverage' 
     means the payment of a check presented or other debit posted 
     against a transaction account by the depository institution 
     in which such account is held, even though there are 
     insufficient or unavailable funds in the account to cover 
     such checks or other debits.
       ``(6) Overdraft coverage fee.--The term `overdraft coverage 
     fee' means any fee or charge assessed in connection with 
     overdraft coverage, or in connection with any negative 
     account balance that results from overdraft coverage, 
     excluding fees or charges relating to overdraft lines of 
     credit or transfers from an account linked to another 
     transaction account or line of credit. Such fee shall be 
     considered a `finance charge' for purposes of section 106(a), 
     but shall not be included in the

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     calculation of the rate of interest for purposes of section 
     107(5)(A)(vi) of the Federal Credit Union Act (12 U.S.C. 
     1757(5)(A)(vi)).
       ``(7) Overdraft coverage program.--The term `overdraft 
     coverage program' means a service under which a depository 
     institution assesses an overdraft coverage fee for overdraft 
     coverage.
       ``(8) Transaction account.--The term `transaction account' 
     has the same meaning as in section 19(b)(1)(C) of the Federal 
     Reserve Act (12 U.S.C. 461(b)(1)(C)).''.
       (b) Conforming Amendment.--Section 107(5)(A)(vi) of the 
     Federal Credit Union Act (12 U.S.C. 1757(5)(A)(vi)) is 
     amended by inserting ``, other than an overdraft coverage 
     fee, as defined in section 103(cc) of the Truth in Lending 
     Act (12 U.S.C. 1602(cc))'' after ``inclusive of all finance 
     charges''.

     SEC. 4. FAIR MARKETING AND PROVISION OF OVERDRAFT COVERAGE 
                   PROGRAMS.

       Chapter 2 of the Truth in Lending Act (15 U.S.C. 1631 et 
     seq.) is amended by adding at the end the following new 
     section:

     ``SEC. 140B. OVERDRAFT COVERAGE PROGRAM DISCLOSURES AND 
                   CONSUMER PROTECTION.

       ``(a) Prohibitions.--No depository institution may engage 
     in acts or practices in connection with the marketing of or 
     the provision of overdraft coverage that are unfair, 
     deceptive, or designed to evade the provisions of this 
     section.
       ``(b) Marketing Disclosures.--Each depository institution 
     that provides or offers to provide overdraft coverage with 
     respect to transaction accounts held at that depository 
     institution shall clearly and conspicuously disclose in all 
     marketing materials for such overdraft coverage any overdraft 
     coverage fees.
       ``(c) Consumer Consent Opt-in.--A depository institution 
     may charge overdraft coverage fees with respect to 
     withdrawals from automated teller machines or debit card 
     transfers only if the consumer has consented in writing, in 
     electronic form, or in such other form as is permitted under 
     regulations of the Board.
       ``(d) Consumer Disclosures.--Each depository institution 
     shall clearly disclose to each consumer covered by an 
     overdraft protection program of that depository institution--
       ``(1) that--
       ``(A) the consumer may be charged for not more than one 
     overdraft coverage fee in any single calendar month and not 
     more than 6 overdraft coverage fees in any single calendar 
     year, per transaction account; and
       ``(B) the depository institution retains the discretion to 
     pay (without assessing an overdraft coverage fee) or reject 
     overdrafts incurred by the consumer beyond the numbers 
     described in subparagraph (A);
       ``(2) information about any alternative overdraft products 
     that are available, including a clear explanation of how the 
     terms and fees for such alternative services and products 
     differ; and
       ``(3) such other information as the Board may require, by 
     rule.
       ``(e) Periodic Statements.--Each depository institution 
     that offers an overdraft coverage program shall, in each 
     periodic statement for any transaction account that has an 
     overdraft coverage program feature, clearly disclose to the 
     consumer the dollar amount of all overdraft coverage fees 
     charged to the consumer for the relevant period and year to 
     date.
       ``(f) Exclusion From Account Balance Information.--No 
     depository institution may include the amount available under 
     the overdraft coverage program of a consumer as part of the 
     transaction account balance of that consumer.
       ``(g) Prompt Notification.--Each depository institution 
     shall promptly notify consumers, through a reasonable means 
     selected by the consumer, when overdraft coverage has been 
     accessed with respect to the account of the consumer, not 
     later than on the day on which such access occurs, 
     including--
       ``(1) the date of the transaction;
       ``(2) the type of transaction;
       ``(3) the overdraft amount;
       ``(4) the overdraft coverage fee;
       ``(5) the amount necessary to return the account to a 
     positive balance; and
       ``(6) whether the participation of a consumer in an 
     overdraft coverage program will be terminated if the account 
     is not returned to a positive balance within a given time 
     period.
       ``(h) Terminated or Suspended Coverage.--Each depository 
     institution shall provide prompt notice to the consumer, 
     using a reasonable means selected by the consumer, if the 
     institution terminates or suspends access to an overdraft 
     coverage program with respect to an account of the consumer, 
     including a clear rationale for the action.
       ``(i) Notice and Opportunity To Cancel.--Each depository 
     institution shall--
       ``(1) warn any consumer covered by an overdraft coverage 
     program who engages in a transaction through an automated 
     teller machine or a branch teller if completing the 
     transaction would trigger overdraft coverage fees, including 
     the amount of the fees; and
       ``(2) provide to the consumer the opportunity to cancel the 
     transaction before it is completed.
       ``(j) Overdraft Coverage Fee Limits.--
       ``(1) Frequency.--A depository institution may charge not 
     more than one overdraft coverage fee in any single calendar 
     month, and not more than 6 overdraft coverage fees in any 
     single calendar year, per transaction account.
       ``(2) Reasonable and proportional overdraft coverage 
     fees.--
       ``(A) In general.--The amount of any overdraft coverage fee 
     that a depository institution may assess for paying a 
     transaction (including a check or other debit) shall be 
     reasonable and proportional to the cost of processing the 
     transaction.
       ``(B) Safe harbor rule authorized.--The Board, in 
     consultation with the Comptroller of the Currency, the Board 
     of Directors of the Federal Deposit Insurance Corporation, 
     the Director of the Office of Thrift Supervision, and the 
     National Credit Union Administration Board, may issue rules 
     to provide an amount for any overdraft coverage fee that is 
     presumed to be reasonable and proportional to the actual cost 
     of processing the transaction.
       ``(3) Posting order.--In order to minimize overdraft 
     coverage fees charged to consumers, each depository 
     institution shall post transactions with respect to 
     transaction accounts in such a manner that the consumer does 
     not incur avoidable overdraft coverage fees.
       ``(k) Debit Holds.--No depository institution may charge an 
     overdraft coverage fee on any category of transaction, if the 
     overdraft results solely from a debit hold amount placed on a 
     transaction account that exceeds the actual dollar amount of 
     the transaction.
       ``(l) Nondiscrimination for Not Opting in.--In implementing 
     the requirements of this section, each depository institution 
     shall provide to consumers who have not consented to 
     participate in an overdraft coverage program, transaction 
     accounts having the same terms, conditions, or other features 
     as those that are provided to consumers who have consented to 
     participate in such overdraft coverage program, except for 
     features of such overdraft coverage.
       ``(m) Non-Sufficient Fund Fee Limits.--No depository 
     institution may charge any non-sufficient fund fee with 
     respect to--
       ``(1) any transaction at an automated teller machine; or
       ``(2) any debit card transaction.
       ``(n) Reports to Consumer Reporting Agencies.--No 
     depository institution may report negative information 
     regarding the use of overdraft coverage by a consumer to any 
     consumer reporting agency (as that term is defined in section 
     603 of the Fair Credit Reporting Act (15 U.S.C. 1681a)) when 
     the overdraft amounts and overdraft coverage fees are paid 
     under the terms of an overdraft coverage program.
       ``(o) Rule of Construction.--No provision of this section 
     may be construed as prohibiting a depository institution from 
     retaining the discretion to pay, without assessing an 
     overdraft coverage fee or charge, an overdraft incurred by a 
     consumer.''.

     SEC. 5. REGULATORY AUTHORITY OF THE BOARD.

       (a) In General.--Not later than 9 months after the date of 
     enactment of this Act (except as provided in subsection (b)), 
     the Board of Governors of the Federal Reserve System (in this 
     Act referred to as the ``Board''), in consultation with the 
     Comptroller of the Currency, the Board of Directors of the 
     Federal Deposit Insurance Corporation, the Director of the 
     Office of Thrift Supervision, and the National Credit Union 
     Administration Board, shall issue such final rules and 
     publish such model forms as necessary to carry out section 
     140B of the Truth in Lending Act, as added by this Act.
       (b) Board Authority Regarding Additional Warnings.--The 
     Board may, by rule, after taking into account the findings of 
     the Comptroller General of the United States under section 6, 
     require warnings at locations such as point-of-sale transfer 
     terminals or other locations, that are similar to those 
     required under section 140B(i) of the Truth in Lending Act, 
     as added by this Act, where feasible, and if the cost of 
     providing such warnings does not outweigh the benefit to 
     consumers.

     SEC. 6. STUDY AND REPORT BY THE GAO.

       (a) Study.--
       (1) In general.--The Comptroller General of the United 
     States shall conduct a study regarding whether it is feasible 
     for a depository institution--
       (A) to provide a warning to a consumer at a point-of-sale 
     transfer terminal that completing a transfer may trigger 
     overdraft coverage fees; and
       (B) to provide the consumer with the opportunity to cancel 
     the point-of-sale transfer before the transaction is 
     completed.
       (2) Considerations.--In conducting the study under this 
     subsection, the Comptroller General shall evaluate--
       (A) the benefits to consumers of a point-of-sale transfer 
     overdraft warning and opportunity to cancel;
       (B) the availability of technology to provide such a 
     warning and opportunity; and
       (C) the cost of providing such warning and opportunity.
       (b) Report to Congress.--Not later than 1 year after the 
     date of enactment of this Act, the Comptroller General shall 
     submit a report to Congress on the results of the study 
     conducted under subsection (a).
       (c) Definitions.--As used in this section, the terms 
     ``overdraft coverage program'', ``overdraft coverage fee'', 
     and ``depository institution'' have the same meanings as in 
     section 103(cc) of the Truth in Lending Act, as added by this 
     Act.

     SEC. 7. EFFECTIVE DATE.

       (a) In General.--This Act and the amendments made by this 
     Act shall become effective 1 year after the date of enactment 
     of this Act, whether or not the rules of the Board under this 
     Act or such amendments are issued in final form.

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       (b) Moratorium on Fee Increases.--
       (1) In general.--During the 1-year period beginning on the 
     date of enactment of this Act, no depository institution may 
     increase the overdraft coverage fees or charges assessed on 
     transaction accounts for paying a transaction (including a 
     check or other debit) in connection with an overdraft or for 
     non-sufficient funds.
       (2) Definitions.--As used in this section, the terms 
     ``depository institution'', ``overdraft'', ``overdraft 
     coverage fee'', ``transaction account'' and ``nonsufficient 
     fund fee'' have the same meanings as in section 103(cc) of 
     the Truth in Lending Act, as added by this Act.

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