Dodd to Propose Bill Curbing Overdraft Fees

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By Binyamin Appelbaum and Nancy Trejos
Washington Post Staff Writers
Friday, September 18, 2009

Sen. Christopher J. Dodd (D-Conn.) plans to introduce legislation in the next few weeks cracking down on overdraft fees, the controversial charges that banks slap on customers who overspend their account balances.

The bill is likely to require companies to obtain permission from customers before enrolling them in overdraft programs, in which the bank automatically lends as much as a customer needs in exchange for a fee on each transaction.

Consumer advocates have fiercely criticized the practice for years because customers are not notified in advance that they are getting what amounts to an expensive loan. The issue now appears to be gaining traction on Capitol Hill.

"Senator Dodd thinks overdraft fees are criminal," said his spokeswoman, Kirstin Brost.

The banking industry, however, defends the practice as a customer service. Overdraft fees also have become a major source of revenue for many banks, forcing legislators to consider the impact of the lost income on the weakened industry.

Years ago, banks rarely approved checks or debit transactions for more than the amount in a customer's account. When they did, they charged fees as a deterrent. Then they realized how profitable the fees were. Moebs Services, an economic research firm in Lake Bluff, Ill., that provides data to the federal government, estimates that overdraft revenue will reach $38.5 billion this year.

The median overdraft fee will be $27.50 this year, up from $25 last year, Moebs said.

Rep. Carolyn B. Maloney (D-N.Y.) has proposed a bill pending in the House that would require banks to notify customers when an ATM or debit card transaction is about to trigger an overdraft fee and give them a chance to decline the service.

The Federal Reserve also is considering a rule that could require customers to request overdraft protection. But consumer advocates say the proposal falls short because it does not cap overdraft fees. They are also frustrated because they have waited years for the Fed to act on the issue. With banks in general disfavor, they are now pressing Congress to act instead.

Dodd's plans were first reported by American Banker, a trade publication.


© 2009 The Washington Post Company

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