Sen. Sherrod Brown (D-Ohio) and Sen. Corey Booker (D-N.J.) have introduced legislation intended to in their words, “crack down on exploitative overdraft fees” that banks charge consumers when they make a purchase or pay a bill but don’t have sufficient funds in their account.

The Stop Overdraft Profiteering Act of 2018 would ban overdraft fees on debit card transactions and ATM withdrawals and limit fees placed for checks and recurring payments. It would also mandate that banks post transactions in a manner that minimizes overdraft and nonsufficient fund fees. Banks, the senators say, have been accused of reordering transactions to maximize overdraft fees and force consumers to face multiple charges.

Specifically the Stop Overdraft Profiteering Act of 2018 would:

Prohibit overdraft fees on debit card transactions and ATM withdrawals;

prohibit financial institutions from charging more than one overdraft fee per month and no more than six overdraft fees in any single calendar year for check and recurring bill payment overdrafts.

limit check and recurring bill payment overdraft fees to an amount that is reasonable and proportional to the financial institution’s costs in providing the overdraft coverage;

mandate a three-day waiting period between when an individual opens a new account and when a financial institution may offer overdraft protection;

mandate that depository institutions post transactions in a manner that minimizes overdraft and nonsufficient fund fees; and

increase other consumer disclosures related to overdraft coverage programs.

In 2010, the Federal Reserve implemented overdraft regulations that, among other things, required that consumers affirmatively opt in to overdraft services. Survey data and anecdotal evidence, however, suggest that the opt-in requirement is being sidestepped by financial institutions marketing overdraft coverage in a confusing and deceptive manner.

A 2014 study by Pew found that, across all banks, more than half of the people who overdrew their checking accounts and paid a fee in the past year could not recall consenting to the overdraft service.

Overdraft fees have emerged as a major source of revenue for banks. Last year alone, three of the largest banks in the country collected over $5 billion in overdraft fees. One former bank CEO even named his yacht “Overdraft” in an apparent nod to the importance of such fees to the bank’s bottom line, the senators say.

The recently filed legislation follows a letter Booker sent last year to the CEOs of 13 banks, the top 10 U.S. banks in overdraft revenue, as well as U.S. banks with over $2 billion in assets that take in the most overdraft revenue per account. It requested more information on their current practices as they relate to overdraft fees.

It is estimated that the top three largest banks alone collected $5.2 billion in overdraft fees in 2017.

Based on the responses to Booker’s request, and relevant data from banks’ publicly available disclosures and quarterly financial filings, his office recently released a report outlining how banks use overdraft fees in ways that he says often don’t serve the best interests of consumers.

In June, Booker, Sen. Elizabeth Warren (D-Mass.), and 14 other senators wrote to the Consumer Financial Protection Bureau to question its decision to no longer pursue regulatory action on overdraft fees. The Bureau failed to include these actions in its most recent regulatory agenda filing.

The letter asks a variety of still-unanswered questions:

Why did the Bureau decide to halt its plan to pursue regulatory action on overdrafts even after the CFPB’s own reports over several years have found that there has been significant abuse?

Even if overdraft rulemaking is taken up at a later point, what will be the impact of this delay on the development of new rules?

To what degree will the CFPB be able to further develop and facilitate adoption of its new prototype forms for overdraft disclosures while overdraft rulemaking is on hold?

During this period in which new overdraft rulemaking is on hold, how does the CFPB plan to address unfair or abusive overdraft practices that are well documented in CFPB reports?

“The CFPB’s role in serving as a watchdog for American consumers continues to be of critical importance,” the senators wrote. “To this end, we urge you to move forward on the rulemaking process on overdrafts that will provide additional protections to consumers.”  

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