October 30, 2009 / 3:53 PM / 10 years ago

Lawmakers attack bank overdraft fees

WASHINGTON (Reuters) - U.S. lawmakers and consumer activists on Friday highlighted the need to reform overdraft fees that banks charge their customers, saying all too often a cup of coffee can wind up costing $40.

Bills moving through the House of Representatives and Senate are designed to limit banks’ ability to charge such fees — often more than $30 per transaction — if a customer inadvertently overdraws his checking account.

The Senate version would also require that customers “opt-in” to these programs, prohibiting banks from providing overdraft protection and charging overdraft fees without a customer’s consent.

Banks have said overdraft protection is a courtesy for their customers.

“We wouldn’t, I believe, be in a situation talking about legislation if you would have had an opt-in regime from the beginning,” House Financial Services Chairman Barney Frank said during a hearing on the House bill Friday. “Don’t do people favors without asking them.”

The panel of witnesses at the hearing included bank industry groups.

The crackdown on fees comes amid public anger over banks that have received billions of dollars in taxpayer assistance, yet are still hiking interest rates and cutting credit lines.

The Federal Reserve is also expected to soon reveal new rules on how banks can charge overdraft fees.

“From start to finish, the consumer is too often kept in the dark and not allowed to choose how he or she spends their own money,” said Democratic Representative Carolyn Maloney.

The House bill was introduced by Frank and Maloney. Frank said his committee would not debate and amend the overdraft fee legislation for a couple of weeks because of scheduling reasons.

In the past five years, overdraft fees have more than doubled, according to the Center for Responsible Lending. Such fees cost consumers $23.7 billion in 2008 and are projected to reach $26.6 billion in 2009, the group said.

“Today’s fee-based overdraft programs cause substantial injury to account holders,” said Eric Halperin, director of the Washington office of the Center for Responsible Lending.

He said consumers living in lower-income areas and senior citizens who rely on Social Security checks are hit especially hard by these fees.

Bank industry groups countered the consumer activists’ arguments, saying overdraft fees are easy to avoid and that overdraft protection is a convenient service.

“Consumers value depository institutions paying their overdrafts — and have come to expect it — as it helps to avoid the embarrassment, inconvenience, fees imposed by merchants and others, and other adverse consequences of having a check bounce or a transaction denied,” said Nessa Feddis, a credit card policy executive at the American Bankers Association.

Bank fees have come under attack in Congress in recent months. Earlier this year, legislation passed that imposed sweeping reforms on credit card practices, limiting fees and requiring more disclosures.

Those reforms had a delayed implementation to give financial firms time to comply, but recent fee hikes have prompted Democratic lawmakers to introduce legislation that would move up the implementation date to December 1, 2009, from February 22, 2010.

Republican Representative Spencer Bachus warned at the hearing on Friday that a crackdown on overdraft fees could unduly harm banks.

“The timing of all this is a challenge, particularly when so many of our banks are losing money,” said Bachus, the ranking Republican member on the committee. “We don’t want to put all our banks out of business.”

Reporting by Karey Wutkowski; editing by John Wallace

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