Another Federal Proposal to Limit Checking Overdraft Fees

Look, we know prepaid debit cards are not perfect. They have fees, and some prepaid card disclosures are downright confusing. But at least they don’t have complicated, surprising, expensive, and (arguably) abusive overdraft policies like many checking accounts do. Senator Dodd from Connecticut just introduced another proposed bill to reign in overdraft charges at banks.

Here’s how Senator Dodd explained the bill (and why it’s needed):

“At a time when many can afford it least, Connecticut consumers like Mario are being hit with hundreds of dollars in penalties for overdrawing on their account by just a few dollars. Banks should not be trying to bolster their profits at the expense of their customers,” said Dodd. “My legislation gives Connecticut consumers control over their bank accounts – giving them the chance to choose whether they want overdraft protection, establishing strict limits on these fees, and shining more light on these practices.”

So-called “overdraft protection programs” enable customers to overdraw their accounts, without their knowledge, they make debit card purchases, electronic transfers, ATM withdrawals or use checks. Account holders are often enrolled in the programs without their consent and many banks will slap customers with fees of upwards of $30 for this “courtesy” even if their account is only overdrawn by a few cents.

Here are a few key features of the bill (which Dodd refers to as the “FAIR Overdraft Coverage Act”). The FAIR Act would:

  • Require banks to get a customer’s consent before enrolling them in an overdraft protection program for ATM and debit card transactions;
  • Limit the number of overdraft coverage fees banks can charge to one per month and six per year;
  • Require fees be proportional to the cost of processing the overdraft;
  • Stop institutions from manipulating the order in which they post transactions in order to rack up extra fees;
  • Require customers be notified when they overdraw their account and be given the option of being notified by email, text or traditional mail; and
  • Require that customers be warned if an ATM or branch teller transaction will overdraw their account, and be given the chance to cancel the transaction.

You can read the full text of the FAIR Overdraft Coverage Act on Senator Dodd’s site.

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