We renew our call for bank regulators to do their job by protecting consumers from abusive debit card overdraft practices. Bankers' whining about minor reforms should not slow the progress of prudent banking policy. As the subprime mortgage fiasco shows, bad policy allows bad practices that hurt not only borrowers, but investors, taxpayers and the banks themselves.
The FDIC has taken an important step by requiring, among other things, that banks inform their frequently overdrawn customers of cheaper overdraft alternatives. Its new guidance warns FDIC-supervised banks against allowing overdraft coverage to function as short-term, high-cost credit, and sets six overdraft fees in a 12-month period as a signal of excessive fees. But much more needs to be done.
Federal banking regulators should stop excessive overdrafts among all banks, not just those supervised by the FDIC, by ending the dysfunctional practice of charging fees of over $30 on small debit card transactions. And, as the FDIC has aimed to do at the banks it supervises, all regulators should ban banks' reordering of transactions, putting the biggest ones first, in order to drain account balances and boost the number of fees they can charge.
As letters to JPMorgan Chase and to Wells Fargo from civil rights groups attest, African American and Latino communities are among the hardest hit by abusive overdraft fees. Reform is essential for both individual Americans and for the economy. Regulators must take action to end these continuing overdraft abuses.
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.