Like Causes?

Install the App
TRY NOW

senate Bill S. 1595

Should Banks’ Ability to Charge Overdraft Fees Be Limited?

Argument in favor

Overdraft fees are disproportionately shouldered by the consumers who can least afford them: workers living paycheck-to-paycheck. While these fees boost banks’ bottom lines, they hurt financially vulnerable consumers, make it harder for them to make ends meet, and can even push such customers into the unbanked population.

Brian's Opinion
···
09/07/2019
While this seems like a good way for banks to earn income, it disproportionately profits off the poor, keeping some people from being able to use the banking system to gain financial independence. Banks should use a different structure that does not penalize the poor or those with unstable incomes in order to help build stronger communities.
Like (95)
Follow
Share
jimK's Opinion
···
09/07/2019
YES! Reasonable, non-compounding charges are certainly warranted to cover costs associated with rectifying accounts. These charges should not be allowed to inflict undue punishment. ... ... Usurious late charges are levied upon people least able to defend themselves or successfully challenge the charges- making them easy targets and an unchallenged revenue source. Those who can challenge unfair practices are more able to simply switch banks. This is kind of an ‘indentured servitude’ to the ‘company store’ which prevents less fortunate from ever getting ahead and is detrimental to both them and to our society.
Like (74)
Follow
Share
Mel's Opinion
···
09/07/2019
This directly affects those who are living on the edge of their accounts. Profiting off of those who are struggling isn’t admirable.
Like (56)
Follow
Share

Argument opposed

Overdraft fees are an important revenue source for banks. This legislation goes a step too far on this issue and will put significant financial pressure on all banks, potentially leading them to stop offering overdrafts or end relationships with poorer customers once they can’t make revenue off charging overdraft fees.

Libertarian's Opinion
···
09/07/2019
Let the consumers regulate this by choosing the banks which treat them best. No laws are required here.
Like (40)
Follow
Share
SneakyPete's Opinion
···
09/07/2019
Overdraft fees are an important revenue source for banks. This legislation goes a step too far on this issue and will put significant financial pressure on all banks, potentially leading them to stop offering overdrafts or end relationships with poorer customers once they can’t make revenue off charging overdraft fees. SneakyPete.......... 9.7.19..........
Like (12)
Follow
Share
Ronald's Opinion
···
09/07/2019
Government interference will make the problem worse. Market forces will fix the problem.
Like (6)
Follow
Share

What is Senate Bill S. 1595?

This bill — the Stop Overdraft Profiteering Act of 2019 — would prohibit a bank from charging overdraft fees on debit card transactions and ATM withdrawals, charging more than one overdraft fee a month, charging more than six overdraft fees in any single calendar year for check and recurring bill payment overdrafts, and more. 

This bill’s key provisions that reduce overdraft fees would:

  • Prohibit overdraft fees on debit card transactions and ATM withdrawals; 
  • Prohibit financial institutions from charging more than one overdraft fee per month and no more than six overdraft fees in any single calendar year for check and recurring bill payment overdrafts;
  • Limit check and recurring bill payment overdrafts fees to an amount that is reasonable and proportional to the financial institution’s costs in providing the overdraft coverage; 
  • Mandate a three-day waiting period between when an individual opens a new account and when a financial institution may offer overdraft protection; and
  • Mandate that banks post transactions in a manner that minimizes overdraft and non-sufficient fund fees.

This bill would also require each bank that offers overdraft coverage to disclose overdraft coverage fees and certain related information. Additionally, banks would be required to provide certain other disclosures regarding their overdraft protection program, including prompt notification of the account's overdraft status.

Finally, this bill would prohibit banks from reporting negative information regarding consumer use of overdraft coverage to any consumer reporting agency when the overdraft amounts and coverage fees are paid under the terms of an overdraft coverage program.

Impact

Bank consumers; bank overdraft fees; banks; and regulation of overdraft fees.

Cost of Senate Bill S. 1595

A CBO cost estimate is unavailable.

More Information

In-DepthSen. Cory Booker (D-NJ) reintroduced this bill from the 115th Congress to crack down on exploitative overdraft fees that banks charge consumers when they make a purchase or pay a bill but don’t have sufficient funds in their account: 

“For millions of hardworking Americans, every day is a struggle – they find themselves one late check or unexpected expense away from financial free fall. I see this in my community in Newark on a daily basis. Wages aren’t going up but the cost of everything else is, from prescription drugs to housing costs to pocketbook pain points like the fees banks charge consumers for overdraft services. These fees generate enormous amounts of revenue for the banks while most customers don’t even know they’ve opted into such charges. Worse yet, overdraft fees fall on those least likely to be able to afford them – individuals for whom a $35 overdraft charge could push them over the brink into financial ruin. Our bill would end these unfair practices many banks use that leave some consumers – especially those that are the most vulnerable – trapped in a vicious cycle of poverty.”

Original cosponsor Sen. Sherrod Brown (D-OH) adds

“Overdraft fees are a tax on paychecks already stretched thin. This bill keeps hardworking Americans’ money in their pockets and stops big banks from slapping big fees on customers for small overdraft amounts.”

Michael Moebs, economist and CEO at Moebs $ervices, criticized this legislation when it was introduced in the 115th Congress. He argued that it would have two unintended consequences, namely causing banks to discontinue offering overdrafts and putting bank workers out of jobs by eliminating a key revenue stream for their employers: 

“Foremost those who will be hurt the most by this legislation are low-to-moderate income consumers, since the options of using banks, thrifts and credit unions for overdrafts could be taken away. This bill, too, could easily put tens of thousands of depository workers out of a job by eliminating a key revenue stream to depositories’ bottom lines.”

Moebs also noted that overdrafts have actually gone down in recent years thanks to better account management technologies and improved account access and that rules limiting their use would benefit loan sharks, not consumers: 

“This same data shows over 1.1 billion overdraft transactions for the year ending March 31, 2017. This is down 21% in the past 10 years due to greater technology to assist consumers with ODs and access to transaction account balances, and an increase in debit card use over paper check systems… [I]f overdrafts were eliminated or substantially reduced, consumers would go more to payday lenders for title loans on cars, or home equity loans on homes. The big winner would be loan sharks. The cost of making a loan for banks and credit unions is much higher than for payday lenders and Fintech firms.”

David Pommerehn, vice president of the Consumer Bankers Association, concurs with Moebs. He says that this proposal would limit a consumer’s ability to obtain short-term liquidity when they need it for everyday expenses such as gas for getting to work or food for their families. He also notes that many banks have already eliminated overdraft fees for accounts that are overdrawn by small amounts, such as $5 or $10. He concludes, “Overdraft is important to some people, and they need it. The premise of the bill is misguided, and I think it would do harm to consumers.”

University of Kansas School of Business professor Robert DeYoung observes that this bill could prompt small, community banks to end relationships with poorer customers because they will lose money covering overdrafts without charging an overdraft fee. He argues that banks can’t be blamed for wanting to earn revenue:

“We can’t fault banks for wanting to earn revenue from their customers. Banks have bills to pay; they have to earn a profit. Some banks try to keep information less than complete so they can earn greater fees, that’s for sure. Others are very clear about it and want their customers to know what the rules are and have no mistakes about when you have to pay.”

As an alternative to this legislation, DeYoung suggests requiring banks to be very explicit about overdraft policies and fees so consumers perfectly understand the conditions of banking with a particular financial institution. He explains: 

“I think a much better approach would be for banks to say [to consumers], ‘There’s not enough money for this,’ or to say, ‘We’ll give you what you want for a $25 fee.’ This is not a large change, a few lines of code could be written to make this happen, and then customers can decide whether they want to pay the fee for this overdraft protection or not. Then everyone’s honest, rather than this very blunt legislation banning things. When you’re banning something, that means banks and consumers no longer have a choice.”

Rebecca Borné, senior policy counsel for the Center for Responsible Lending (CRL) and a contributor to this legislation believes it would force the market to adapt and treat consumers more fairly. She concedes that it may prompt banks to eliminate free checking account options, but would also make them more transparent about their fees: 

“What you see [now] is a lot of banks that offer free checking with no upfront monthly fees, but get all their revenue from checking accounts on overdraft fees. So if you had reasonable regulation, you’d start to see a shift in the pricing model of checking accounts, and maybe most banks would charge a monthly fee for checking accounts and get their revenue that way rather than through these backend ways. Without regulation of overdraft fees, it’s impossible for there to be a shift in the market, because no bank wants to be the one bank to say, ‘We charge $10 a month for checking accounts.'”

This legislation has one cosponsor, Sen. Sherrod Brown (D-OH). Last Congress, it was called the Stop Overdraft Profiteering Act of 2018 and had one cosponsor, Sen. Brown. It didn’t receive a committee vote last Congress. It has little chance of passing the Republican-controlled Senate.


Of NoteOverdraft fees were originally a penalty primarily associated with checks. If a customer submitted a rent check, for example, but didn’t have enough money in his or her account, the bank could still let the check go through and then hit the person with an overdraft fee. In this context, customers would incur the additional cost but also be spared the inconvenience and charges tied to the check bouncing. 

As debit cards gained popularity, banks initially rejected transactions if users didn’t have enough money in their accounts. However, around the late nineties, they found that allowing such transactions to go through and charging the customer a subsequent overdraft fee could be a handy source of income.

Now, banks offer overdraft services to allow account holders to make purchases or pay a bill even if they don't have sufficient funds in their account. The average charge for this service is $35. These fees disproportionately impact customers who are least able to afford them, particularly workers living paycheck-to-paycheck. This is evidenced by a Pew study showing that 18% of account holders pay more than 90% of overdraft and insufficient fund fees and the CFPB’s finding that the majority of frequent overdrafters have lower credit scores and daily balances and are broadly more financially vulnerable than those who don’t frequently overdraft their accounts. Finally, the Pew study also found that nearly seven in 10 heavy overdrafters make less than $50,000 per year

Lauren Saunders, an associate director at the National Consumer Law Center who worked on this legislation with Sens. Booker and Brown in 2018, says, “It’s been well-documented for many years that banks have used a variety of methods to push people into incurring overdraft fees to boost their income. They do a lot to push huge costs on the people least able to bear them.”

Overdraft fees have emerged as a major source of revenue for banks. In 2016, U.S. customers paid roughly $15 billion in overdraft and bounced check fees to all banks — nearly 10% of banks’ net income that year. In 2018, three of the largest banks in the country collected over $5 billion in overdraft fees. One former bank CEO even named his yacht “Overdraft” in an apparent nod to such fees’ importance to the bank’s bottom line. 

In 2010, the Federal Reserve implemented overdraft regulations that required consumers to affirmatively opt-in to overdraft services. However, survey data and anecdotal evidence suggest that the opt-in requirement is being sidestepped by financial institutions marketing overdraft coverage in a confusing and deceptive manner. In a 2014 study, Pew found that across all banks, more than half of the people who overdrew their checking accounts and paid a fee in the past year could not recall consenting to the overdraft service.

The Trump administration has questioned the overdraft rule’s importance. Although predatory overdraft fees had been a longstanding issue on the CFPB’s regulatory agenda, the agency dropped a prior rulemaking to further limit them in 2018. Now, as part of a broader push to reexamine how existing rules affect small businesses, the CFPB is considering rolling back the existing overdraft rule


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / Llgorko)

AKA

Stop Overdraft Profiteering Act of 2019

Official Title

A bill to amend the Truth in Lending Act to limit overdraft fees and establish fair and transparent practices related to the marketing and provision of overdraft coverage programs at depository institutions, and for other purposes.

bill Progress


  • Not enacted
    The President has not signed this bill
  • The house has not voted
  • The senate has not voted
      senate Committees
      Committee on Banking, Housing, and Urban Affairs
    IntroducedMay 22nd, 2019
    While this seems like a good way for banks to earn income, it disproportionately profits off the poor, keeping some people from being able to use the banking system to gain financial independence. Banks should use a different structure that does not penalize the poor or those with unstable incomes in order to help build stronger communities.
    Like (95)
    Follow
    Share
    Let the consumers regulate this by choosing the banks which treat them best. No laws are required here.
    Like (40)
    Follow
    Share
    YES! Reasonable, non-compounding charges are certainly warranted to cover costs associated with rectifying accounts. These charges should not be allowed to inflict undue punishment. ... ... Usurious late charges are levied upon people least able to defend themselves or successfully challenge the charges- making them easy targets and an unchallenged revenue source. Those who can challenge unfair practices are more able to simply switch banks. This is kind of an ‘indentured servitude’ to the ‘company store’ which prevents less fortunate from ever getting ahead and is detrimental to both them and to our society.
    Like (74)
    Follow
    Share
    This directly affects those who are living on the edge of their accounts. Profiting off of those who are struggling isn’t admirable.
    Like (56)
    Follow
    Share
    I used to work in a bank. One of the managers, who’s father was a bank executive stated how “lucrative” the overdraft fees were for the bank. People have budgets. If a person is short 50 cents, 1 dollar or some other minimal amount and is charge $35.00, that is THIEVERY. Then the account gets charged over and over with overdrafts fees to the point the account owner is unable to repay. They demand you pay in some timeframe, which is usually before a payday, when people are broke. If you can’t pay, they close account, put you in check systems- for a problem they created! I once had a bank charge me $250.00+ for overdrafts because the account balance was low and automatic drafts kept hitting the account. I asked both sides to stop the transaction and neither would. The banks has millions and families have so much less. Stop making it harder for families to survive with the overdraft fee practice. Limit it to 1 fee per 30 days.
    Like (45)
    Follow
    Share
    Thanks to the Republicans, banks are already making plenty of money.
    Like (33)
    Follow
    Share
    Yes. Regulations on banks - including limiting overdraft fees - are essential.
    Like (28)
    Follow
    Share
    We bailed their asses out, but they have no problem screwing us over. Sounds very Republican. All big business, screw the average citizen.
    Like (26)
    Follow
    Share
    Banks do everything but turn you upside down to shake the change out of your pockets to scrape every last cent from customers. It is obscene and should be kept in "check".
    Like (16)
    Follow
    Share
    Overdraft charges should deter overdrafts, but without a set limit, banks have no restrictions and will raise their charges out of all proportion. A study by Pew Research shows most people with overdrafts are using them as temporary payday loans that cost interest of 1000%. http://www.pewtrusts.org/research-and-analysis/issue-briefs/2017/12/overdraft-does-not-meet-the-needs-of-most-consumers Allow banks to fully control overdraft levels does not do anything to decrease the practice. What we need to do is make the economy work for EVERYONE so people don’t find themselves short at times and have to use payday loans. Not everyone understands what money management services are available to them, or how to access those services. The banks have no real incentive to assist them because they are winning at this overdraft game. We need free, comprehensive financial education in schools and communities that everyone can access, and promotion on a national level of the importance of financial responsibility to encourage use of those resources.
    Like (16)
    Follow
    Share
    Yes it should, banks do not need another reason to rip off their customers consistently.
    Like (14)
    Follow
    Share
    Cory Booker must be bouncing checks.
    Like (14)
    Follow
    Share
    Fees should cover the true expense of the oversight. $40 fee for $10.00 check seems like gouging
    Like (13)
    Follow
    Share
    How about the banks give us an interest rate, on our savings, of 10 to 15%, like we used to get in the 60’s-80’s? Our savings could actually grow, in those days. Now, they still loan our savings money out, while earning 10 to 25% on credit card interest, but we’re lucky if we get a .01% on them using our savings to make their loans. Sounds criminal to me but, hey, who cares about us little people. Additionally, the wealthy are given special savings accounts and rates. Too bad we can’t all be wealthy, eh? With this current thief in charge, we never will be either!
    Like (13)
    Follow
    Share
    Overdraft fees are an important revenue source for banks. This legislation goes a step too far on this issue and will put significant financial pressure on all banks, potentially leading them to stop offering overdrafts or end relationships with poorer customers once they can’t make revenue off charging overdraft fees. SneakyPete.......... 9.7.19..........
    Like (12)
    Follow
    Share
    Banks already takes more than their fair share of people’s wages. No more should be given to the profiteers!
    Like (11)
    Follow
    Share
    They don’t have people working for them any more, computers do all the work so the rich get richer and the poor get poorer. If the banks kept other costs down with these fees then maybe, but they don’t. $$$ is all they care about.
    Like (10)
    Follow
    Share
    To add such high overdraft is stupid. If the people had the money they would pay their bills and not overcharge. The retired person has to decide medicine food? You greedy bastards want to rob these people for what for who who gets that money You are morally bankrupt
    Like (10)
    Follow
    Share
    People end up going broke just having a bank when they’ve gone over a few dollars because they just need to get by until payday.
    Like (10)
    Follow
    Share
    Yes. Banks make money hand over fist, Even very small private banks pay their CEOs and CFOs in the six figures. They are always looking for a way to needle more money out of the customers. It’s a total rip off.
    Like (9)
    Follow
    Share
    MORE