By: Joe Gillen
The American Bankers Association has expressed its opposition to a new bill that would further regulate banks' overdraft privilege programs.
The bill, dubbed the "Overdraft Protection Act," is being sponsored by New York Representative Carolyn Maloney, and seeks to impose specific additional sanctions on the size and frequency of fees. Under the bill, overdraft charges must be "reasonable and proportional" to the cost of the transaction, and the quantity of fees would be limited to once per month and six per year.
There is a clause that would require consumers to affirmatively opt-in to overdraft privilege programs before being permitted to utilize the service. The bill also contains a provision that would ban banks from manipulating the order in which they post transactions.
The bill has received criticism from the ABA, which argues that further limitations may prevent consumers from taking advantage of programs that provide a safety net during periods of economic uncertainty.
"We oppose this harmful legislative proposal, which would hurt financial institutions and their customers," said ABA spokesperson Jeff Sigmund. "Overdraft protection is a service customers freely elect to have and they value their payments being covered. They know the fee in advance and can opt out of overdraft protection at any time."
The new bill is the latest assault on overdraft service, following the Consumer Financial Protection Bureau's inquiry into a handful of banks' policies regarding their programs. However, many industry professionals and consumers are standing their ground when it comes to the benefits of overdraft programs. Advocates of overdraft programs argue that while these services are not designed to be a permanent solution to financial problems, they can provide short-term capital that is more cost-effective than bouncing a rent check or being unable to pay for utilities.