WASHINGTON-The chairman of the Senate Banking Committee said last week the Senate may pass legislation regulating overdraft protection fees that goes beyond the opt-in requirements the Federal Reserve announced last week.
The Fed's rules are "a good start," said Sen. Christopher Dodd, a Connecticut Democrat, during a Senate Banking Committee hearing last week. "But my legislation goes further, and I remain committed to ensuring that American consumers are protected."
Dodd's bill is similar to an overdraft protection bill being debated in the House and would require opt-in for all overdraft protection programs, but would also limit the number of overdraft fees that could be charged an individual per month and per year, require that fees be proportional to the cost of processing the overdraft and stop institutions from manipulating the order in which they post transactions in order to rack up extra fees. It would also require that customers be notified when they overdraw their account and be given the option of being notified by email, text or traditional mail and require that customers be warned if an ATM or branch teller transaction will overdraw their account, and be given the chance to cancel the transaction.
The credit union lobby is asking Congress to wait until the effects of the Fed's new rules have been studied before proceeding with separate overdraft bills in the House and Senate. "We hope the Fed action, as well as the fact that Congress is presently considering the creation of a consumer financial protection agency, will give Congress pause in pursuing the various legislative proposals pending before both chambers," CUNA President Dan Mica said in a letter to Sen. Dodd last week.
Mica predicted dire consequences resulting from the proposed bills. "The provisions of S. 1799 that would limit the number of overdraft fees that could be charged per month and per year would simply end overdraft programs to the detriment of many consumers who truly value these programs," he told Dodd of his bill.
NAFCU President Fred Becker also sent a letter to Dodd opposing the bill. Specifically, Becker said the proposed limits on overdraft charges could drive credit unions away from the program, popular with many consumers.
Passage of the bill, the NAFCU chief told Sen. Dodd., would "likely cause many federal credit unions to end overdraft protection programs for their members, drying up an important customer service."
"Furthermore," he wrote, "such limitations on credit union income as those contained in S. 1799 could severely impact the ability of many credit unions to continue to operate, and potentially force some of our smaller members to close their doors forever. Credit union members in some areas may have few other banking options and may be forced to look to payday lenders and check cashiers to obtain the financial services they need."
Among the witnesses at last week's hearing was Frank Pollack, president of Pentagon FCU, who endorsed efforts to rein in abuses on overdraft protection programs, especially the opt-in provision. "Our program has always been opt-in," said Pollack. "We believe strongly that consumers should have opt-in rights." Pollack said his $14-billion credit union, the nation's third largest, plans to expand its Warriors Advantage program that gives members two free non-sufficient funds transactions every 90 days from active duty military to all of its members. This should cover virtually all NSF transactions.
The Pentagon FCU chief was the second head of a large credit union to appear before Congress in recent weeks in support of overdraft reforms, following Jim Blaine, president of North Carolina Employees' CU, who testified last month before the House Financial Services Committee.
Pollack appeared along side representatives of the credit union-backed Center for Responsive Lending and long-time credit union ally Consumer Federation of America, who also endorsed overdraft protection reforms, and a representative from Citibank, who did not.
