Business & Money

New bill introduced to crack down on bank overdraft fees

By Nisa Islam Muhammad -Staff Writer- | Last updated: Aug 22, 2018 - 2:00:30 PM

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WASHINGTON—U.S. Senators Cory Booker (D-NJ) and Sherrod Brown (D-OH) recently introduced legislation, 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.

The Stop Overdraft Profiteering Act of 2018 would ban overdraft fees on debit card transactions and ATM withdrawals, and limit fees placed for checks and recurring payments. It would also mandate that banks post transactions in a manner that minimizes overdraft and nonsufficient fund fees (oftentimes, banks reorder transactions in such a way as to maximize overdraft fees, which can mean, in some cases, that the consumer faces multiple charges).

“For millions of hardworking Americans, every day is a struggle–they find themselves one late check or unexpected expense away from financial free fall,” Sen. Booker said. The bill was introduced Aug. 3.

“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.”

He added, “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.”

For Daisy Johnson, living paycheck to paycheck barely described her life.  Every nickel, dime and penny she earned was accounted for.  She had no room in her budget for overdraft fees, absolutely no room.  One month when she miscalculated and ended up with $75 in bank fees she cried what seemed like a river of tears.  It was only $75 but to her it was so much more.

“I can’t afford to give any money to the bank,” she told The Final Call.  “They don’t need my money, I do.  I was so sad about it.  The banks are making so much money off of poor people who can’t afford to do better that it’s just a shame,” said Ms. Johnson.

“I know people may be thinking that it’s just $75. That’s not a lot but it’s my $75 and I should be able to decide how I want to spend it not the bank,” she added.

The Stop Overdraft Profiteering Act of 2018 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.

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

Overdraft fees have emerged as a major source of revenue for banks. Last year alone, 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 the importance of such fees to the bank’s bottom line.