The use of debit cards has become a popular alternative in purchasing, but like credit cards, it is also a subject for abuse by banks with overdraft fees.
After enacting the credit card Act of 2009, which overhauls the credit system and functions primarily to protect the consumers, the House Financial Services Committee is seriously considering passing a law that concerns debit cards.
Committee Chairman, Barney Frank, said banks have automatically signed up its customers and clients, who have checking accounts, to overdraft programs. Through this, it allows consumers to use the debit card to purchase and enter transactions even if they have limited money on their account.
Frank also chided the bank industry for ignoring customers' rights by not giving them the option of whether they want to be enrolled in this program or not.
As of present, the Senator admitted there is no law restricting banks on overdraft programs, thus, leaving the industry a leeway to charge its customers as much as $39 for every transaction.
In a proposed bill filed by Representative Carolyn B. Maloney (D-NY), it prohibits financial companies to charge its customers more than one overdraft fee per month. It shall also require customer's consent before enrolling in overdraft programs, and fees shall be a fraction of the amount overdrawn.
Maloney explained that a consumer should not be charged $35 to $39 for a cup of coffee he purchased, which costs $5 only.
Meanwhile, the Senate Banking Committee also filed this same proposed bill to stabilize the financial condition of customers by regulating overdraft fees.
Banks and financial companies are expected to earn $38.5 billion this year for overdrawn fees alone. In 2008, it recorded $36.7 billion earnings for the same programs.
The increase was due to more customers opting to use debit cards in doing transactions because fees are much cheaper than using credit cards.
Widespread use of debit cards further boost when banks and credit companies have reduced credit card lines of its customers.
In the past, banks rejected debit card transactions if the money in the account is not sufficient. Only few financial companies adapted overdraft programs.
Banks and lending companies have suffered billions of dollars in losses due to non-payment as a result of increasing unemployment rate in the US.
To cover this loss, one of the measures undertaken by banks is approving debit card transactions with a fee.
In 1997, banks charged debit card users $16.50 for overdraft. After 10 years, it increased to $29. The median fee today is $35.