Tuesday, October 2, 2007

Overdraft Protection Disclosure Bill Runs into Stiff Opposition From Banking Lobby

This is an important story I'll bet you haven't heard about. Stories like this are really why we started this blog in the first place.

It's Friday, you go shopping. You know your bank account is tight, but you figure that the check you sent to the water company won't be posted until Monday which is when your paycheck should post. It's a small risk, but what the heck, you use your check card to buy the new digital camera you have been wanting for months. The purchase goes through.

The following Tuesday you receive a notice from your bank. With the purchase of your camera you were $17 overdrawn. The bank tells you that it saved you the embarrassment of a bounced check by covering the overdraft. Oh, by the way the fee for their service is $35.

According to Donny Shaw over at the Open Congress Blog

Overdraft protection is offered to bank customers as a safety net to save them from the embarrassment of bouncing a check or having their debit card rejected when trying to make a purchase. But in most cases, because customers often don't know that their accounts allow them to take out more than they've put in and are not notified when they are about to do so, overdraft protection is a sneaky way for banks to rope customers into taking out hugely overpriced loans.
The numbers I mentioned are accurate. The average overdraft is about $17.00, the average bank fee for the service is about $34.00 (if memory serves, my bank charges $35) Referred to in the banking business as "overdraft loans" the collective numbers are staggering. According to the Center for Responsible Lending
fees for abusive overdraft loans have reach $17.5 billion per year, more than the loans themselves, which now amount to $15.8 billion per year.
That's right, the fees charged are more than the amounts loaned.

More after the break.

To help consumers Rep. Carolyn Maloney [D, NY-14] has introduced H.R.946 - Consumer Overdraft Protection Fair Practices Act. A modest proposal the Maloney's bill is intended to
"To extend the protections of the Truth in Lending Act to overdraft protection programs and services provided by depository institutions, to require customer consent before a depository institution may initiate overdraft protection services and fees, to enhance the information made available to consumers relating to overdraft protection services and fees, to prohibit systematic manipulation in the posting of checks and other debits to a depository account for the purpose of generating overdraft protection fees, and for other purposes."
In short its proposals are measured and tilted toward full disclosure.

The bill has 23 co-sponsors including Blue Girl's own Emanuel Clever. As one might imagine it has run into a firestorm of opposition from banking lobbyists who are afraid their very profitable little loans might be restricted.

Again according to Shaw.
Lobbying against the bill has been intense. It was originally slated to be marked-up by the committee last week, but the mark-up was delayed to due to the concerns expressed by banking group lobbyists. The Independent Community Bankers Association, for example, is concerned about technological limitations on complying with the point-of-sale provision. "An out-of-network [system] has to be able to interface with a community bank in Illinois and get real-time information. It's going to be tough," said Jason Kratovil, director of congressional policy issues for ICBA. And Nessa Feddis of the American Bankers Association has said that "current technology makes real-time notification of overdrafts cost prohibitive." In other words, they could update the technology, but it would be very expensive. I wonder how those costs compare to the $17.5 billion in overdraft fees that consumers spend each year...

An aide to Maloney has indicated that she will offer a manager's amendment to strike the point-of-sale provision, which could be re-atached later through the Senate's actions on the bill.
I think it is time we let our congress members know that we appreciate their effort to pass this bill in the face of intense opposition from the banking lobby.