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Fed Overdraft Rule Inadequate, Congress Must Act

Thursday, November 12, 2009

"The Federal Reserve Board's action today on debit card overdraft fees legitimizes an abusive product without providing any substantive protections for bank customers. We appreciate that the Fed chose to implement the strongest overdraft reform rule it was considering, namely requiring banks and credit unions to ask new and existing customers before charging overdraft fees on debit card transactions. But this improvement is undermined by the Fed's failure to propose or enact necessary safeguards against a host of unfair practices.

The Fed acknowledges in its new rule that the fees charged for debit card overdrafts can "substantially exceed" the cost of the overdraft itself. Yet, the rule does not prohibit institutions from charging an unlimited number of overdraft fees in a single day, even if the transactions are for small amounts, which most are. In fact, the typical debit overdraft is for $17. The typical fee a bank charges to cover that overdraft is $34.

Congress needs to step in to stop the abusive practices the Fed has known about for nearly a decade, but once again has failed to address. Bills in the House and Senate, introduced in recent weeks by Rep. Carolyn Maloney and Sen. Christopher Dodd, would limit overdrafts to no more than one a month and six a year. The legislation also would require that fees be reasonable and reflect an institution's cost of covering an overdraft."

For more information: Kathleen Day at (202) 349-1871 or; Ginna Green at (510) 379-5513 or; or Charlene Crowell at (919) 313-8523 or