What's FAIR to Banks, Customers?
November 1, 2009
Source: Akron Beacon Journal
By Betty Lin-Fisher
Last month, three big national banks announced changes to their overdraft protection policies, saying they would end fees on accounts that are short by $5 and $10 and put a cap on the number of overdraft charges.
Overdraft protection policies are designed to help cover checks that would otherwise bounce. Bank officials say they offer the programs in order to protect consumers from unpaid bills and to help avoid the embarrassment of a check being returned for insufficient funds. But consumers have often complained about what they call excessive fees.
The practices have caught the attention of Congress.
Four senators, including Sherrod Brown of Ohio, introduced a bill called the Fairness and Accountability in Receiving (FAIR) Overdraft Coverage Act. Similar legislation was also introduced in the U.S. House.
Items included in the proposed bill:
• 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 charges a bank can charge to one per month and six per year.
• Require fees to be proportional to the cost of processing the overdraft.
• Stop institutions from manipulating the order in which they post transactions, a practice that bank critics say allows them to rack up extra fees.
• Require customers to be notified when they overdraw their account.
• Require that customers be warned and have the opportunity to cancel an order if an ATM or branch teller transaction will overdraw their account.
Brown said in a telephone interview that it rankles taxpayers that the government helped stabilize the financial industry, but big banks seem to be returning the favor by charging billions of dollars in overdraft fees.
''To show their gratitude, they nick [consumers] for $30 here and $50 there. It's not a good business practice and is simply not fair,'' said Brown.
Senators said five days after plans to introduce the bill were announced, J.P. Morgan Chase, Bank of America and Wells Fargo announced changes to overdraft coverage protections, including the ability to opt out of the programs.
Chase and Wells Fargo said they would cancel fees for accounts overdrawn by $5 or less, and Bank of America would end fees for accounts overdrawn by $10. Chase also said clients would pay a maximum of three penalties per day, down from six, and the other two banks are capping their fees at four instead of 10. Chase said it would deduct charges in the order they're incurred instead of starting with the largest amount at the end of each day.
Bank officials have consistently said they usually pay the largest checks first because they assume customers want their mortgages and car payments paid, but the practice has upset customers and legislators, who say it's an attempt for banks to rack up the overdraft fees, which are often $20 to $30 or nearly $40 more per item.
