WASHINGTON – Lawmakers are not expected to hold off on proposed reforms on overdraft protection rules even after last week’s new rules by the Federal Reserve requiring opt-in on overdraft programs for all debit and ATM transactions.
The credit union lobby is urging Congress to wait until some of the impact of the Fed’s new rules, which take effect July 1, are known before moving their overdraft bills. "(Rep.) Maloney and (Sen.) Dodd don’t want to wait. They want to move forward," John Magill, chief lobbyist for CUNA, said yesterday, of separate proposals in the House and Senate that would go further than the Fed’s new rules by adding several new restrictions on overdraft protection programs.
The House bill, sponsored by Rep. Carolyn Maloney, D-N.Y., would limit overdraft fees to no more than one a month and six a year and restrict the charges to what is "proportional" to covering the cost of the overdraft.
The bill, which is scheduled to be voted by the House Financial Services Committee as soon as this week but will probably wait until after Thanksgiving, would also require opt-in for all overdraft, including checking, and prevent credit unions and banks from ordering payments by amount, requiring that the first payment be applied to the first overdraft.
A bill introduced in the Senate by Banking Committee Chairman Christopher Dodd, D-Conn., would also limit the amount and number of overdraft fees a credit union or bank could charge. Sen. Dodd will hold a hearing on the overdraft issue today where Pentagon FCU President Frank Pollack will testify on behalf of new restrictions on overdraft programs. Also testifying will be representatives from credit union-backed consumer lobby the Center for Responsible Lending, the Consumer Federation of America, Citibank and an individual consumer from Dodd’s home state of Connecticut.
Both bills would apply the Truth In Lending Act’s disclosures to overdraft programs, thereby requiring the fees be calculated as annual percentage interest rate, but both would exempt the rates from being compared under NCUA’s interest rate ceiling.
Enactment of the legislation could dissuade many credit unions from offering the popular program, according to Ryan Donovan, senior lobbyist for CUNA. "The legislation in the House and Senate would essentially end overdraft protection programs for credit unions," said Donovan, pointing out that the new restrictions could render the programs unprofitable.
