Skip to Content

Booker, Brown Introduce Bill to Crack Down on Bank Overdraft Fees

Overdraft fees disproportionately fall on customers who are least able to afford them

August 3, 2018
Photo

WASHINGTON, D.C. — U.S. Senators Cory Booker (D-NJ) and Sherrod Brown (D-OH) have introduced legislation to crack down on exploitative overdraft fees that banks charge consumers when they make a purchase or pay a bill but don’t have sufficient funds in their account.

The Stop Overdraft Profiteering Act of 2018 would ban overdraft fees on debit card transactions and ATM withdrawals, and limit fees placed for checks and recurring payments. It would also mandate that banks post transactions in a manner that minimizes overdraft and nonsufficient fund fees (often times, banks reorder transactions in such a way as to maximize overdraft fees, which can mean, in some cases, that the consumer faces multiple charges).

“For millions of hardworking Americans, every day is a struggle – they find themselves one late check or unexpected expense away from financial free fall,” Booker said. “I see this in my community in Newark on a daily basis. Wages aren’t going up but the cost of everything else is, from prescription drugs to housing costs to pocketbook pain points like the fees banks charge consumers for overdraft services. These fees generate enormous amounts of revenue for the banks while most customers don’t even know they’ve opted into such charges. Worse yet, overdraft fees fall on those least likely to be able to afford them – individuals for whom a $35 overdraft charge could push them over the brink into financial ruin. Our bill would end these unfair practices many banks use that leave some consumers – especially those that are the most vulnerable – trapped in a vicious cycle of poverty.”

“Overdraft fees are a tax on paychecks already stretched thin,” Brown said. “This bill keeps hardworking Americans’ money in their pockets and stops big banks from slapping big fees on customers for small overdraft amounts.”

Specifically the Stop Overdraft Profiteering Act of 2018 would:

·         Prohibit overdraft fees on debit card transactions and ATM withdrawals.

·         Prohibit financial institutions from charging more than one overdraft fee per month and no more than six overdraft fees in any single calendar year for check and recurring bill payment overdrafts.

·         Limit check and recurring bill payment overdrafts fees to an amount that is reasonable and proportional to the financial institution’s costs in providing the overdraft coverage.

·         Mandate a three-day waiting period between when an individual opens a new account and when a financial institution may offer overdraft protection.

·         Mandate that depository institutions post transactions in a manner that minimizes overdraft and nonsufficient fund fees.

·         Increase other consumer disclosures related to overdraft coverage programs.

Background on overdraft fees:

Banks offer overdraft services to allow account holders to make purchases or pay a bill even if they don't have sufficient funds in their account, while charging a fee for the service – on average $35.

In 2010, the Federal Reserve implemented overdraft regulations that, among other things, required that consumers affirmatively opt-in to overdraft services. However, survey data and anecdotal evidence suggest that the opt-in requirement is being sidestepped by financial institutions marketing overdraft coverage in a confusing and deceptive manner. A 2014 study by Pew found that across all banks, more than half of the people who overdrew their checking accounts and paid a fee in the past year could not recall consenting to the overdraft service.

These fees are disproportionately charged to customers who are least able to afford them, especially workers living paycheck to paycheck.

Overdraft fees have emerged as a major source of revenue for banks. Last year alone, three of the largest banks in the country collected over $5 billion in overdraft fees. One former bank CEO even named his yacht “Overdraft” in an apparent nod to the importance of such fees to the bank’s bottom line.

Senator Booker’s record on overdraft fees:

Today’s legislation follows a letter Senator Booker sent last year to the CEOs of 13 banks – the top ten U.S. banks in overdraft revenue, as well as the U.S. banks with over $2 billion in assets that take in the most overdraft revenue per account – requesting more information on their current practices as they relate to overdraft fees.

Based on the responses to that request, as well as relevant data from banks’ publicly available disclosures and quarterly financial filings, Booker’s office recently released a comprehensive report outlining how banks use overdraft fees in ways that often don’t serve the best interests of consumers.

Last month, Booker sent a letter, signed by 14 other Senators, to the Consumer Financial Protection Bureau questioning its plan to no longer pursue regulatory action on overdraft fees, after it failed to mention action in its most recent regulatory agenda filing, even though it had been on the Bureau’s agenda for four years.

Booker has been a fierce advocate in the Senate for cracking down on corporate practices that hurt consumers and workers. Earlier this year, he introduced the Worker Dividend Act, targeting the increasing trend of corporations using profits for stock buybacks instead of using them to raise wages for workers. In February, he introduced a bill to crack down on collusive “no poaching” clauses that are often used by large franchisor to prohibit franchisees from hiring each other’s workers (End Employer Collusion Act).

Last year, Booker introduced a bill targeting companies that outsource much of their labor costs to contractors and temp workers rather than hiring direct employees. He also pressed antitrust regulators on corporate concentration and the increasing trend of “monopsony” power, which limits worker mobility and depresses wages.

 

Endorsed by:

Center for Responsible Lending

National Consumer Law Center (on behalf of its low income clients)

The Leadership Conference on Civil and Human Rights

NAACP

Americans for Financial Reform

Consumer Federation of America

New Jersey Citizen Action

Ecumenical Poverty Initiative

National Baptist Convention USA, Inc.

African Methodist Episcopal Church - Social Action Commission