Overdraft Protection Gets No Respect

The problems for overdraft protection programs continue to swirl around the market as the Consumer Financial Protection Bureau continues to review consumer and financial institutions’ comments in preparation for writing new rules. Now a new legislative effort is underway to require more changes. Consumers are telling regulators and Congress that they are still confused about how these programs work and apparently legislators are unhappy that they were not able to drive more of these fees out of the system with their 2010 overdraft legislation. Eliminating the separation between electronic and paper transactions that qualify for overdraft protection might seem like a good idea, but consumers whose mortgage and utlity bill checks are bounced might not agree. In addition, defining overdraft fees as finance charges will require financial institutions to issue formal disclsoures, adding more expense and complexity to these programs.

The Overdraft Protection Act requires consumer consent before banks can permit overdraft fees on paper checks, automated clearinghouse (ACH) charges that usually involve recurring monthly payments and debit card “swipe-terminal” transactions on consumer accounts, such as those at gas stations, said the bill’s chief sponsor Rep. Carolyn Maloney, D-New York, senior member of the House Financial Services Committee.

The measure also defines overdraft fees as finance charges subject to the Truth in Lending Act disclosures.

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