Congress Urged to Move Further Than Fed on Overdraft Protection

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, Nov. 13, 2009

Consumer groups and lawmakers said the Federal Reserve Board’s announcement of new rules giving customers the right to "opt in" to overdraft protection for automated teller machine and one-time debit card transactions was an important first step, but said more needs to be done to combat abusive practices.

The Fed rules, which go into effect July 1, 2010, will provide consumers with a notice that explains the overdraft services, including the associated fees. Fed Chairman Ben Bernanke called the rules “an important step forward in consumer protection.”

Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group (PIRG), said the rules were “not good enough” as they do not cover recurring electronic automated clearing house (ACH) withdrawals or checks. “Some of the time protection is never as good as round-the-clock protection,” he said.

Bills proposed by Rep. Carolyn Maloney, D-N.Y., and Senate Banking, Housing and Urban Affairs Committee Chairman Chris Dodd, D-Conn., would provide consumers with more comprehensive protection, including limiting the maximum number of overdraft fees to one per month and six per year, Mierzwinski noted.

Dodd, meanwhile, said the Fed rules were a “long-overdue announcement for American consumers…but we need to do far more to protect customers from abusive bank products.” Dodd called for an end to excessive fees, repeated charges, lax notification, and processing manipulation in overdraft protection programs.

The Consumer Federation of America said the Fed rules fail to provide essential protections to consumers, such as Truth in Lending Act coverage for overdraft fees as finance charges, and Fed authority to cap overdraft fees based on reasonable cost.

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