WASHINGTON — Senate Banking Committee Chairman Chris Dodd introduced sweeping legislation Monday to curb overdraft fees that would require banks to let their customers opt in for the service and place substantial restrictions on the cost and frequency of charges for such protection.

The bill's introduction puts mounting pressure on banks to reduce overdraft fees. Several key Democrats have targeted overdraft as an unresolved consumer protection issue and used it to further their arguments for a consumer financial protection agency.

"At a time when many can afford it least, American consumers are being hit with hundreds of dollars in penalties for overdrawing on their account by just a few dollars. Banks should not be trying to bolster their profits at the expense of their customers," Sen. Dodd said in a press release.

The bill has already prompted some banks to act and comes ahead of planned action by the Federal Reserve Board, which is expected to issue final regulations next month governing overdraft programs.

Several banks, including Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co., announced last month that they plan to reduce overdraft fees.

According to a summary of the bill, the Fairness and Accountability in Receiving Overdraft Coverage Act would significantly regulate overdraft protection programs and limit banks' ability to profit from such fees.

The bill would require banks to give their customers the option to opt in for overdraft protection and would prohibit them from punishing customers who opted out by denying them access to unrelated preferential terms, conditions or features available to those who opt in.

It would go further in some ways than a similar bill sponsored in the House by Rep. Carolyn Maloney, D-N.Y., by capping the number of fees banks could charge to one per month and six per year. Institutions could then either deny coverage of additional overdrafts or choose to forego a fee. The bill would also go further than the House bill by requiring fees to be "reasonable" by ensuring they are proportionally related to the amount of overdraft covered.

"From the summary it looks like a very strong bill," said Eric Halperin, the director of the Center for Responsible Lending's Washington office. "It will save consumers billions a year on overdraft fees."

Like the Maloney bill, the Dodd bill also would ban institutions from manipulating the order in which they post transactions to rack up fees.

The Dodd bill would require institutions to warn their customers in advance if a transaction at an automated teller or branch teller would overdraw their account, and offer the chance to cancel the transaction.

It would not however require such notification at the point of sale as Maloney has proposed and instead calls for the Government Accountability Office to study the idea.

It would require banks to notify customers about overdrafts, giving them the choice of having such notifications through e-mail, text or traditional mail.

The bill also adds a slew of disclosure requirements such as reporting a year-to-date tally of fees on monthly statements and providing notices to consumers about other options to overdraft like lines of credit, in which they can compare the terms.

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