Support Fair Overdraft Protection Programs
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Support Fair Overdraft Protection Programs
Representatives Maloney (D-NY), Frank (D-MA), and Carson (D-IN) have introduced legislation to protect consumers from abusive overdraft loan programs, while preserving the ability of financial institutions to cover truly occasional overdrafts as a courtesy that does not trigger the Act's requirements.
Dear [ Decision Maker ] , As currently drafted, H.R. 946 would put a stop to some of the most abusive overdraft practices, and enable consumers to exercise informed choice and meaningful control over their personal finances. I urge you to co-sponsor this important bill, if you haven't already. If you are on the Financial Services Committee, I further urge you to vote "NO" on any amendments that would weaken the bill: it must retain the following critical protections: * Allow consumers to compare the cost of overdraft loans with the cost of other credit options by requiring Truth in Lending Act (TILA) disclosures. * Require financial institutions to obtain written consent from both new and existing account holders in order to enroll them in an overdraft loan program. * Require financial institutions to warn customers when an ATM withdrawal will trigger a fee--and allow customers to cancel the transaction at that time. * Prohibit financial institutions from manipulating the order of check clearing so as to increase customers' overdraft loan fees. These are common sense protections that are desperately needed to keep financial institutions from taking advantage of hardworking families in order to boost their revenues. Please support H.R. 946, without amendment, and end abusive overdraft loan practices. Please support H.R. 946, "The Consumer Please support H.R. 946, "The Consumer Overdraft Protection Fair Practices Act." This bill will go far to protect consumers from abusive overdraft loan practices that are now costing them $17.5 billion in fees per year. Financial institutions are using overdraft loan programs to convert checking account holders into frequent short-term borrowers -- and turning ATM/debit cards into high-cost credit cards.
Sincerely, |
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| Background Information |
Overdraft lending: the problem
Our nation's major financial institutions are making unsolicited, high-cost loans to their checking account holders when their account balance dips below zero, generating enormous fees for the banks and frequently driving their customers deeper into the negative.
Financial institutions never have to reveal that customers pay triple- and quadruple-digit interest rates. They make overdraft loans without customers' consent, and they manipulate the order in which they clear deposits and withdrawals in order to maximize overdrafts. Research shows that low-income families pay a disproportionate share of overdraft loan fees.
Under these systems, the bank or credit union generally pays the customer's checks, debit card transactions, and ATM withdrawals when the customer's account lacks sufficient funds. When the customer's next deposit is made, the financial institution debits the amount of the overdrafts, plus a fee averaging $34 for each incident.
The Center for Responsible Lending estimates that Americans pay $17.5 billion per year in fees for these loans that many borrowers never asked for and can't afford.
H.R. 946: the solution
On February 8, 2007, Representative Carolyn Maloney, Chairwoman of the Financial Institutions Subcommittee (D-NY), Financial Services Committee Chairman Barney Frank (D-MA), and Representative Julia Carson (D-IN) introduced legislation to protect consumers from abusive overdraft loan programs and stop financial institutions from deliberately manipulating their systems to generate more overdrafts—while preserving the institutions' ability to cover occasional overdrafts as a courtesy without triggering the Act's requirements. The Act would:
- Amend the Truth in Lending Act to clarify that overdraft fees are finance charges, so that annual interest rates are reported. Consumers would then be able to compare the cost of overdraft loans with the cost of other credit options.
- Require written consent before enrollment in the overdraft loan program.
- Require financial institutions to warn the customer when an ATM withdrawal will trigger a fee—and allow the customer to cancel the transaction at that time.
- Prohibit financial institutions from manipulating the order of check clearing to increase customers’ overdraft loan fees
