Overdraft Fees: Reform?

With credit card reform legislation passed this year, some are looking at bank overdraft fees as the next big item in reform of the banking industry.

In September, both Chase and Bank of America announced they were making changes to the way that they handle overcharge fees on checking and banking accounts. The announcement comes as powerful Congress members look to address the issue.

Carolyn Maloney, a Democrat representative from New York, has legislation dealing with the issue.  Maloney, a major force behind the credit card reform legislation, says her bill would force banks to allow consumers to ask for overdraft protection, require notification before overdrafting an account, and make banks post checks chronologically, thereby keeping them from charging overdrafts by playing games with the order in which they arrive.

“The steps announced by Bank of America and Chase to reduce the burden of overdraft policies on consumers are significant improvements and will be good for their customers,” Maloney said.

Sen. Christopher Dodd, D-Conn., is proposing legislation that would require people to opt in to an overdraft charge program.

“Excessive, automatic overdraft fees are forcing many American families deeper into debt at a time when they are already struggling to make ends meet,” said Dodd. “I am working on a bill to protect consumers from these fees,” Dodd said.

According to a 2008 Federal Deposit Insurance Corporation study, the average amount of overdraft charges among overdrafted accounts runs from $64 to $1,610. In 2006, banks earned $1.97 billion in charges related to insufficient funds.  One organization says each year banks receive $1 billion in overdraft fees from young people and $4.5 billion from senior citizens.