Senator Christopher Dodd, the Senate banking committee Chairman, proposed a new bill last Monday to protect checking account consumers from excessive penalties.
This new congressional measure will give customers a choice in whether they will participate in overdraft programs that will charge rates for automated teller and debit card transactions.
Most banks today automatically enroll customers in overdraft programs and charge each with a fee if they spend more than what is in their account. The rate usually ranges from $25 to $35, even if the excess is just a few dollars. Unwary customers who make overdrawn purchases in a day could be charged a $35 fee for each transaction.
In anticipation of the said bill, some major banks said they would advise customers to opt out of these programs, and some vowed to lower their fees.
Senator Dodd's proposed legislation would require these institutions to get people's consent first before enrolling them in overdraft protection programs. The bill would limit the number of fees that these financial institutions can charge, to only one per month and six per annum.
Moreover, Dodd's proposal intends to require that the excess balance fees should be proportional to cost of the processing. Customers would also be notified when they overdraw their account, and warned if an ATM or teller transaction will overdraw their account.
The bill further prohibits banks from sending negative reports to their consumer credit report agencies if an excess fee is paid under the program.
The proposal would follow the same legislation enacted into law last spring, in order to protect account holders from high interest rates and penalties charged by credit card companies. Congress is also trying to make a legislation to increase consumer protection for other financial transactions.
Sen. Sherrod Brown, D-Ohio, one of the proponents of the said legislation, revealed that since taxpayers helped stabilize the financial services industry, banks should not slam these taxpayers with billions of dollars in overdraft fees in return. He further said that just last year, Ohio consumers paid nearly $900 million in overdraft charges.
Sen. Dodd noted that after the announcement of the bill, Wells Fargo, Bank of America, and JPMorgan Chase, said they would make moderate changes in their programs.
Rep. Carolyn Maloney, D-N.Y., also introduced a similar legislation in the House.
As of Monday, Bank of America said it would not charge an initial fee for overdrafts under $10. Consumers would still be charged the $35 fee for not bringing the account into balance within five days.