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Overdraft programs and fees Informative - Overdraft reform proposal

Review by saj80 on 2009-10-28
We'll see what happens with this, as I can assure everyone that banks will fight this vehemently via their growing legion of lobbyists:

Rep. Carolyn Maloney (D-N. Y.), chairman of the Joint Economic Committee Chairman, late last week introduced a bill (H. R. 3904) that would require a written opt-in for banks to enroll customers in overdraft protection programs. The legislation, among other things, also would limit overdraft fees to one per month and six per year, require fees to be proportional to the cost of processing overdrafts; mandate that customers be warned if an ATM transaction would overdraw their account; and require transactions to be posted “in such a manner that the consumer does not incur avoidable overdraft coverage fees.”

House Financial Services Committee Chairman Barney Frank (D-Mass.) is one of the bill’s original co-sponsors. Senate Banking Committee Chairman Chris Dodd (D-Conn.) introduced similar legislation on Oct. 19.
Comments:33 Replies - Latest reply on 2009-10-29
Posted by msnanny on 2009-10-28:
Help me to understand this bill please? Is it saying that somebody can overdraft as often as they want each month and the bank will only be allowed to charge them one OD fee??? Doesn't seem right to me.
Posted by Anonymous on 2009-10-28:
So, people can still spend money they don't have and get away with it? That doesn't help people that don't know how to manage their money.
*sighs*
Posted by Anonymous on 2009-10-28:
The only good thing about a law like this would be for banks to process transactions in an order that minimizes overdraft fees (like posting the smaller transactions first.) I know they wouldn't want to do this but it should be mandated to them.
Posted by yoke on 2009-10-28:
This bill makes NO sense. What it is saying is you can overdraft all you want and only get one fee per month.
Posted by saj80 on 2009-10-28:
I don't see any way this passes, especially limiting banks to one fee per month. However, it is good to see that someone is taking notice, and perhaps the overdraft issues that seem to be abusive can be curbed. I do like fees being based on actual costs, as each year banks continue to raise their overdraft fees, which are mostly fee income for the banks, as the actual processing cost is minimal.
Posted by PepperElf on 2009-10-28:
only one OD fee allowed a month?

sweet that means i can go over-draft as many times as i want and only get punished once...
Posted by Anonymous on 2009-10-28:
This is the whole mentality of the country now. No personal responsibility is necessary, big brother will take care of everything for you. It ought to be enough just to say that Barnie Frank authored it. He's the wonderful fella that brought you the collapse of the mortgage industry. He's sure somebody who should be deciding how to run banks all right.
Posted by Anonymous on 2009-10-28:
Barney Frank, is a "co-sponsor?" He was on the banking committee that watched the banks collapse.
Posted by skelly39 on 2009-10-28:
I like the part about the fees being proportional to the cost of processing. Overdraft fees are exhorbitant. But it is up to the individual to keep track of their bank account. I just think there is a lot of backlash due to the banks making money hand over fist off these fees.
Posted by Fufu487 on 2009-10-28:
I know I keep bringing this up, time and time again. But this is how overdraft SHOULD be!! This is how the Canadian banking system already works (mostly, small differences). The bank I represent only charges overdraft ONCE A MONTH, even if you go into overdraft several times that month. And the charge for overdraft? $4.97! No joke. You guys pay wayyyyyy too much. Also, customers with overdraft protection are approved ahead of time for it, with their consent, and choose how much they'd like to apply for. If you have bad credit, you don't tend to get overdraft, and your transactions just get declined at point of sale if you have insufficient funds in your account. Banks cannot manipulate your transactions, they are recorded in order they are received, and merchants don't have the option of sending your transaction days later, it's done in real time.

I really hope this bill does pass.... The American banks have been getting away with ridiculously high charges for far too long. I agree, personal accountability is an issue with many complaints on this board. But I think this could be a very positive change :)
Posted by MaggieMcT on 2009-10-28:
Only six overdraft fees a year no matter how many times you overdraft? Sure, let's encourage financial irresponsibility. It's not like irresponsibility, on a multitude of levels, is what got us into this mess.
Geesh.
Posted by Anonymous on 2009-10-28:
Fu, I bet Canadians actually manage their money better too.

I think if you spend more than you have you should be sued for fraud.
Posted by Anonymous on 2009-10-28:
Even though the overdraft policies of the big banks are obscene I don't care for this legislation. I'd rather see congress take steps to break up these mammoth banks that are supposedly too big to fail into much smaller regional banks.

As far as this proposed legislation goes: I like the 'opt in' requirement.

What I would like to see is a provision that would force banks to clearly disclose their overdraft charges/policies in a standard easy to understand and compare format like the mandatory disclosure provided by credit card issuers.

I'd like the law to define overdraft protection as a loan (which it is) rather than a convenience fee. This would subject overdraft protection to existing laws concerning lending.

The proposed legislation is merely populace dribble that no doubt will fall victim to the law of unintended consequences.
Posted by goduke on 2009-10-28:
Stop overdraft fees completely. Deny all transactions which overdraft an account. Return the checks. Deny the cards at point of sale. Eat the card at the ATM. Problem fixed.
Posted by Anonymous on 2009-10-28:
"Deny all transactions which overdraft an account. Return the checks. Deny the cards at point of sale. Eat the card at the ATM."

If only.
Force people to be responsible with their funds.
Except, we'd see more complaints about banks and things even more so than we're already seeing.
Posted by JR in Orlando on 2009-10-28:
If these guys proposed it, the banking system will get worse for the average person. 1) Banks will screen who can "opt in" for overdraft protection, the chronic overdrafters will not qualify, 2) Banks will not pay overdraft checks for those who did not "opt in" causing bounced check fees from stores, 3) Banks will raise ATM fees to cover costs, 4) attorneys will make money arguing over how debits should be ordered - since the same ordering for one person could cause lots of fees, while it would cause less for another, and 5) Banks will require minimum amounts on accounts, since why put up with this hassle for small accounts always near the bottom. Then these legislators will be surprised this occurred.
Posted by Anonymous on 2009-10-28:
Balance your friggin' checkbook.
Posted by Anonymous on 2009-10-28:
JR you say that but this country and the banks got along just fine before the explosive rise of overdraft fees. Lets not forget that it wasn't that long ago when there was no such thing as the current convenience fee defined overdraft protection. Let's not chicken little this.
Posted by skelly39 on 2009-10-28:
I agree with Stew. What happened before banks went nuts with fees? Now I'm not saying that if you accidentally overdraw your account (yes, accidents happen), there should be no penalty. But the penalty should be in line with the overdraft, you know-the way it used to be. Seems to me like things were better then.
Posted by Anonymous on 2009-10-28:
JR speaks the truth. If this were to pass, things would get really ugly. For one thing, banks will almost certainly return to the practice of closing the account on the third overdraft. The difference is that today, all the rest of thebanks will know automatically that the depositor is irresponsible, and they won't be able to get another account. Buy hey, at least they won't be paying big overdraft fees anymore.
Posted by Anonymous on 2009-10-28:
Here's the actual proposed legislation.

http://maloney.house.gov/documents/financial/overdraft/HR3904OverdraftProtection.pdf
Posted by MaggieMcT on 2009-10-28:
goduke, I like the way you think.
Posted by madconsumer on 2009-10-28:
i can see it now. if banks are limited to a couple overdraft fees per month, checks and debit cards will start to be declined. then we will hear about that too.

i for one am ready for warrants to be issued for nsf checks. bring back the good ole days!!
Posted by CrazyRedHead on 2009-10-29:
If the banks start declining checks and debit cards for insufficient funds and/or rearranging transactions from smallest to largest there are going to be some homeless and vehicleless people complaining on here, not to mention people who were embarrassed when they were declined.
Posted by MaggieMcT on 2009-10-29:
Madconsumer, I think you're right, the banks will go back to declining. And the very same people who are now saying "they only approved it so they could charge me an overdraft fee" will be on here saying "how dare they!"
Posted by yoke on 2009-10-29:
I wish they would go back to the old way. Close the account if there are 3 overdrafts. Don't pay the overdrafts, let them bounce and have the retailer deal with the ones who want to bounce checks, decline all transactions that do not have the funds available. I think if the banks started to make people responsible for their own accounts we won't see the OD's that have gotten out of hand.
I'm sure if all this happens we will get the same ones complaining that the banks closed their account or declined a transaction.
I know if they change it to how I said it will not affect me.
Posted by Anonymous on 2009-10-29:
I am with Yoke. I wish it would go back to the way it was. Then the crybabies will start to appreciate the little conveniences the bank gives them.

Won't affect me either. I know how to manage my money.
Posted by Fufu487 on 2009-10-29:
But overdraft can be a GOOD thing for people that are responsible with it. It doesn't have to have a bad rep. Consider your credit card attached to your bank account. When you overdraw, you go into "credit", but you don't get ridiculous fees for it. You have to get "approved" for the credit, and therefore, if your irresponsible with your money, banks won't allow you to have overdraft. And yes, cheques will bounce, payments will bounce if you dont have overdraft. People just need to learn to use their accounts responsibly.

I just hate how overdraft is considered such a bad thing on this site. It's not a bad thing, it's just not regulated properly in the U.S.
Posted by goduke on 2009-10-29:
Fufu...I agree with you completely. OD can be a good thing for folks who just make a mistake in balancing, etc. It does happen. Once in a while.

If I were the bank god, however, I'd show folks what it's like if there wasn't an overdraft bucket. Then ask them which way they liked it better.
Posted by Fufu487 on 2009-10-29:
lol agreed goduke. I think the problem is that they don't teach children basic finances and budgeting in school anymore (correct me if I'm wrong because of course, I don't live in America). I have my budget written on a piece of paper. Every payday, out comes that budget, and everything gets done, that day. I have found that people who don't budget have problems maintaining their finances. It's like a grocery list, you know what you have to get going into the store, if you don't have a list, your going to miss a few items and end up going back, or going without them.
Posted by Anonymous on 2009-10-29:
My parents taught me about budgeting in finance. My school did that in math class, but this was in the early 90's. As far as I know, school's don't do it anymore. And it sucks. I see these kids, live out on their own for the first time, and they're the ones with fiancial difficulties, especially when they think they can still spend and spend and wonder why they don't have any money.
But, it's not just kids. I've seen adults, either my age or older, and not know how to manage their money.
They just spend money, get screwed because they just make deposits and spend; not really keeping track... and blame someone else.
I had an overdraft recently... like yesterday. Did I blame the bank? No. I had an error in math in my register. But, I took personal responsibility for it and took the steps necessary to correct it. I didn't get ticked off at my bank, yell at the teller or manager. I knew what I had done wrong. I know how the system works; I don't try to float checks or spend more money than I have. And I certainly don't yell at the people that work in that business. It's not their fault for my math error.
Posted by Anonymous on 2009-10-29:
Just wait a cotton picking minute. I don't want schools teaching my kids budgeting or money management. That's MY JOB as a parent.
Posted by Anonymous on 2009-10-29:
"That's MY JOB as a parent."

As well it should be.

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