Congressional Democrats Take Action Against Banks Charging Excessive Fees | Columnists

Skyrocketing prices for food, fuel and accommodation make most consumers worry about whether they will have enough money for a given month.

Customers with bank and credit union accounts should pay close attention to their monthly statements to identify multiple overdraft charges.

Marketed and sold as a “customer convenience,” overdraft fees are charged whenever the cost of a transaction exceeds a checking account balance. With an average of $35 per use, banks are inflating their profits, most often by exploiting the short-term cash needs of consumers who are usually only days away from their next deposit.

In return, banks and credit unions across the country raise $15 billion each year from cash-strapped customers with an average account balance of $350 or less. More monetary misery is added by the manipulative practices of some banks designed to maximize fees by delaying posting of deposits to the account and/or re-arranging transactions.

It should be noted that some banks have voluntarily chosen to change or end their overdraft programs. Consumer advocates applaud lenders who have taken steps to reduce these costly fees.

However, there is no legal obligation for other institutions to do so. Some lenders continue to charge three or more overdraft fees of $34 or more per day, often costing consumers over $100 in a single day. The typical debit card overdraft fee, the most common source of overdraft, is from a transaction under $24, refunded within three days. In lending terms, an overdraft fee of $34 for a $24 three-day loan equals 17,000% APR.

As one consumer put it Consumer Financial Protection Bureau (CFPB), “$35 is a lot of money for someone who doesn’t have any.”

There is nothing inherently wrong with a financial institution making a fair profit. But there’s nothing fair when billion-dollar institutions design products to prey on people with the least financial resources — just to boost their bottom line.

“Rather than competing with quality service and attractive interest rates, many banks have become addicted to overdraft fees to fuel their profit model,” the CFPB director said. Rohit Chopra.

Other CFPB Research found that consumers who pay more than 10 overdraft fees per year account for 75% of overdraft fees each year.

If you’re thinking “there should be a law,” New York Congresswoman Carolyn Maloney agrees.

More than a year ago, she proposed the Overdraft Protection Act and was joined by 30 co-sponsors. Since then, the number of co-sponsors has doubled to 60 and now includes House colleagues representing 25 states, including California, Illinois, Maryland, Massachusetts, Michigan, New York and Texas. The accompanying legislation is also in the US Senate.

The Overdraft Protection Act (HR 4277) would amend the Truth in Lending Act to strengthen fair and transparent banking practices. Among its provisions, the bill would require fees that are “reasonable and proportionate” to the amount overdrawn, expand timely and detailed customer notices and/or statements, and give customers the ability to cancel a transaction before incurring charges. costs.

For example, it is currently legal for banks to change the order of transactions, so they can debit accounts from largest to smallest to increase the number of overdraft fees triggered. As banks maximize their overdraft income, consumers are being drained of dollars that can keep their household finances in the black. Rep. Maloney’s bill would ban such practices.

Other research and advocacy reinforce Rep. Maloney’s legislative purpose. Congressional testimony from the Center for Responsible Lending (CRL) highlighted how consumers of color are being harmed the most by ill-conceived institutional practices.

“By causing account closures and eroding trust in financial institutions, bank overdraft practices fuel financial exclusion,” wrote CRL.

“Banks that promise millions or billions of dollars of investment in underserved communities while continuing to reap hundreds of millions or even billions of dollars a year in overdraft fees are depriving the very communities they claim support… Congress must hold these regulators accountable while ensuring that all checking accounts are free from destructive overdraft practices.

Charlene Crowell is a senior researcher at the Center for Responsible Lending.

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