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June 4, 2009 - Last month, Congress passed legislation that places limitations on the kinds of changes lenders can make to credit card accounts. For the most part, the bill simply mimicked rules that the FED and the Office of Thrift Supervision had already set and which were due to go into effect next July, but the bill did provide some limited additional protections to consumers. Today, Sen. Christopher Dodd made it clear that Congress was not finished with lenders and he warned banks that they shouldn’t be charging consumers excessive checking account fees.
"While we just scored a tremendous victory for consumers against unfair and abusive credit card practices, we're now seeing that a few banks have applied some of the same unscrupulous practices to bank accounts," said Dodd.
"At a time when so many families are already struggling to make ends meet, automatic overdraft charges and other excessive fees are forcing consumers deeper into debt. Banks and consumers should know that these actions have not gone unnoticed, and that I will continue to work to protect consumers from these fee increases and other unfair practices."
According to a new report out from the University of California at Davis, the average American family pays $500 in bank and credit card fees annually. Of the people surveyed, 45% paid late fees on credit cards and 32% paid fees associated with overdraft protection on their checking accounts. These are the fees that Dodd appears to have targeted.
It used to be that banks didn’t provide overdraft protection to everyone. In fact, you had to have good credit to get it and the bank would then issue you a check guarantee card. If you used it too often, the bank would cancel the protection. No more. Overdraft protection is now automatic on most checking accounts because banks found that it was more profitable to charge fees that than it was to offer it to a select few customers.
Every time you write a check or use a debit card, it is assumed that you have the money in your account to cover the charges. If you don’t, then the bank will still cover your check but they will charge you… an average of around $35… for every check or debit card purchase you make that requires the use of overdraft protection. Given the state of the current economy and the high unemployment rate, some people are being hit with thousands of dollars in overdraft charges.
There has been a move afoot at the FED and in Congress to reign in banks by requiring them to get the permission of consumers to offer overdraft protection. The way that would work is if you were making a purchase using a debit card, you the purchase would not go through if you hadn’t authorized the bank to provide overdraft protection and you didn’t have enough money in your account. In the case of writing a check, the check would bounce rather than be processed (of course, this would mean that you would be hit with a bounced check charge).
Whether or not Dodd will make any headway with lenders remains to be seen, but it is clear that Congress likes the positive publicity it has received from the recent credit card bill. And the mood across the country is less than friendly towards banks right now. This means that if Congress does decide to act, it will likely do so soon.
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Credit Issues 
