Schumer Bill Targets Overdraft Fees

Troy Record
September 8, 2009
Franco, James V.

Unfair overdraft fees charged by banks cost U.S. households millions of dollars annually, according to U.S. Sen. Charles Schumer (D-N.Y.), who has drafted legislation that would cut those charges nearly in half. In recent years, more banks have moved away from denying transactions at the point of sale because of insufficient funds and toward covering the transaction and charging the customer a fee for the service. An FDIC study last year found that 81 percent of banks surveyed allow overdrafts at ATMs and debit card terminals, but only 11 percent inform consumers beforehand. Four out of five consumers would prefer the transaction be denied rather than accept an overdraft charge but do not have that choice because of automatic enrollment in overdraft programs. Moreover, customers who do not realize they have overspent can be charged multiple fees in a single day. Banks also are coming under fire for rearranging charges in order to trigger the most overdrafts possible, thus increasing their revenue from fees. A customer with $10 in his or her account, for example, could complete three $2 transactions followed by a $9 sale -- which should incur a single overdraft charge. However, the bank could post the $9 transaction first, incurring three subsequent overdrafts with the $2 transactions and producing three times the fees. Schumer hopes to put these practices in check with his bill, which would require customers to opt in to an overdraft program or be given an easy way to opt out of it; compel banks to notify spenders when a transaction could result in an overdraft and allow them the option of canceling the sale; ban banks from changing the order in which checks and other debits are posted if it causes more overdrafts and fees; and require banks to be proportional in the fees they charge, meaning that the fee for a $.05 overdraft should not be the same as that for a $100 overdraft. "Bottom line, debit cardholders are getting scammed by their banks," the legislator declares. "It's time to stop them dead in their tracks."