[Congressional Record (Bound Edition), Volume 155 (2009), Part 6]
[Extensions of Remarks]
[Page 7297]
[From the U.S. Government Publishing Office, www.gpo.gov]




            CONSUMER OVERDRAFT PROTECTION FAIR PRACTICES ACT

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                        HON. CAROLYN B. MALONEY

                              of new york

                    in the house of representatives

                        Thursday, March 12, 2009

  Mrs. MALONEY. Madam Speaker, overdraft fees are becoming an 
increasing problem for bank customers. A November 2008 Federal Deposit 
Insurance Corporation (FDIC) study of 462 FDIC regulated banks found 
that 86% operated formal overdraft programs, with 75% automatically 
enrolling consumers into an overdraft protection plan. In some cases, 
consumers were not allowed to opt-out. Automated overdraft usage fees 
assessed by banks ranged from $10 to $38, and the median fee assessed 
was $27.
  A separate report released by the nonpartisan Center for Responsible 
Lending (CRL) demonstrates that well over $10 billion dollars in 
overdraft fees are generated each year, with almost half generated from 
debit card purchases, in which the customer typically has no warning 
that the transaction will trigger an overdraft fee. Not surprisingly, 
the CRL study also showed that the overwhelming majority of customers 
want to know if a debit or ATM transaction would trigger an overdraft 
fee.
  To provide consumers more notice and choice related to overdraft 
fees, I am reintroducing the Consumer Overdraft Protection Fair 
Practices Act.
  The central provision of the Consumer Overdraft Protection Fair 
Practices Act is that it requires notice to customers when an ATM or 
debit card transaction will trigger an overdraft and an opportunity in 
real time for the consumer to accept or reject the overdraft service 
(and the associated fee) for that transaction.
  This legislation amends the Truth in Lending Act (TILA) to provide 
these new consumer protections. By bringing overdraft plans under the 
TILA, as an extension of credit, it would require the disclosure of the 
terms and charges associated with an overdraft program. This would give 
an opportunity for account holders to choose to have an overdraft plan 
or not--the same basic consumer protections provided for other consumer 
credit products.
  In addition, the bill seeks to stop the practice of banks maximizing 
their overdraft fee income by intentionally manipulating the order in 
which they process debits on customer accounts so as to increase the 
number of overdrafts. For example, some banks pay the largest check 
first before paying other smaller checks or making any deposits. While 
banks argue that the largest check is often the most important, a bank 
that has an overdraft program generally pays them all, so changing the 
order only changes the amount of the fees paid by the customer.
  This disclosure bill is modeled on legislation with which most 
Americans are now very familiar--requiring disclosure at ATMs that ATM 
transactions will trigger a fee. Just as individuals may choose the 
convenience of withdrawals from an ATM, they may choose the convenience 
of overdraft protection or not, after being informed of the cost of the 
service.
  In summary, the bill provides these key protections:
  Requires consumer consent before banks can permit overdraft loans for 
a fee. Banks will be required to obtain written consent for covering 
overdrafts for a fee, and to disclose to consumers the amount of any 
fee, the types of transactions that will overdraw the account, and the 
time period for repayment of the extension of credit.
  Clarifies that overdraft fees are finance charges under the Truth in 
Lending Act, so consumers can compare the cost of borrowing the bank's 
funds through an overdraft with other sources of cash advances.
  Prohibits banks from manipulating the order in which checks and other 
debits are posted if it causes more overdrafts and maximizes fees.
  Requires banks to warn the customer that an electronic transaction 
may trigger an overdraft loan fee and allow the customer to cancel the 
transaction after receiving this warning.

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