Consumer Groups Applaud Senator Dodd’s Overdraft Reform Bill


Center for Responsible Lending
October 21, 2009

Consumer groups strongly support Senator Christopher Dodd for introducing a bill this week that would curb many of the abusive overdraft practices of banks and credit unions. Those practices now strip nearly $24 billion annually from checking accounts, primarily from Americans living paycheck-to-paycheck.

The "Fairness and Accountability in Receiving Overdraft Coverage Act" ("FAIR Act") that Dodd has proposed would require financial institutions to obtain explicit permission from all their customers before enrolling them in a system of fee-based overdraft coverage for debit card and ATM transactions.  This action is long overdue and one that we hope the Federal Reserve also will take later this year.

The bill also offers additional, major reforms that the Fed has failed to propose, much less adopt.  In addition to requiring express consent—which should be an essential, baseline protection for any credit product—the FAIR Act would, among other protections: 

  • Require that an overdraft fee charged on any transaction be reasonable and that its size bear some relationship to the cost of covering the overdraft;
  • Prohibit reordering of customer transactions to trigger otherwise avoidable overdraft fees;
  • Limit the number of overdraft fees per person to six a year and no more than one a month.  At that point, financial institutions would have to enroll the consumer in a lower-cost program or stop charging for covering overdrafts.

We are pleased that this bill would put long-overdue brakes on abusive overdraft practices by banks and credit unions, practices that make holding on to and managing the money in their checking accounts difficult for many Americans. We urge Congress to pass the FAIR Act as soon as possible.

For more information: Kathleen Day at (202) 349-1871 or kathleen.day@responsiblelending.org; Ginna Green at (510) 379-5513 or ginna.green@responsiblelending.org; or Charlene Crowell at (919) 313-8523 or charlene.crowell@responsiblelending.org.

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About the Center for Responsible Lending

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions.