Overdraft Reform Must Be Put into Law

Statement by Eric Halperin, Director CRL, Washington, D.C. on announcement of overdraft policy changes by three major U.S. banks


Center for Responsible Lending
September 25, 2009

"Americans are fed up with bank overdraft practices. Media scrutiny and proposed legislation in Congress prompted three of the nation's largest banks to unveil changes to their overdraft policies this week. But the changes are far from enough and, in fact, underscore the need for comprehensive overdraft reform as quickly as possible.

Only one of the three banks has announced significant improvements: It will stop charging overdraft fees on debit card transactions unless customers have explicitly signed up for that kind of coverage. And it will stop the unfair practice most banks follow of re-ordering a day's debit card transactions to maximize the number of overdraft fees generated. 

Despite these limited changes, all three banks will continue to engage in unfair overdraft practices pervasive throughout the industry:  charging fees that far exceed the amount of the overdraft transaction itself and charging excessive numbers of overdraft fees per day.  And two of the three will continue to charge customers overdraft fees on debit card transactions without their explicit authorization-a practice that prompted thousands of Americans to send written complaints to the Federal Reserve Board last spring.

Banks should simply deny debit card transactions without charging a fee if the funds aren't there, unless customers are given the option to cancel the transaction.  One major bank denies debit card overdrafts now. And a March survey found the large majority of people would prefer it this way.  

The Federal Reserve Board and other regulators have acknowledged that overdraft practices are a problem but have failed to take action to stop them.  The Consumer Financial Protection Agency that Congress is now considering would have authority to rein in the banks and protect consumers-and taxpayers-from unfair financial practices and products. If we don't put overdraft reform into law, then even small improvements the industry makes while under pressure will likely disappear once the spotlight fades."

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.