New Dodd bill would set overdraft rules

WASHINGTON (10/20/09)—Sen. Christopher Dodd (D-Conn.), who heads the Senate Banking Committee, unveiled his new bill Monday that would limit the fees financial institutions can charge on overdraft protection services.

According to a release from Dodd's office, The FAIR Overdraft Coverage Act would:

• Require financial institutions to get a customer's or member's consent before enrolling them in an overdraft protection program for ATM and debit card transactions;

• Limit the number of overdraft coverage fees that could be charged to one per month and six per year;

• Require fees to be proportional to the cost of processing the overdraft;

• Prohibit institutions from manipulating the order in which they post transactions in order to rack up extra fees;

• Require that accountholders be notified when they overdraw an account and be given the option of being notified by email, text or traditional mail; and

• Require a warning if an ATM or branch teller transaction will overdraw an account, and give the accountholder the option to cancel the transaction.

The Credit Union National Association (CUNA) has noted that overdraft protection plans are a service that is fully consistent with the credit union philosophy and mission to serve members' financial needs and to help them resolve short-term financial problems.

CUNA maintains that such programs, when used appropriately by members, serve as a valuable alternative to overdrawing share drafts. CUNA has said it would support new law or regulation that:

• Prohibits the manipulation of debits and credits with the intent of generating overdraft fees;

• Provides clear and conspicuous disclosure of all costs associated with these programs to ensure that credit union members have the ability to compare the costs and features of overdraft protection programs among the various types of financial institutions that offer them;

• Recognizes, consistent with the current Federal Reserve Board position, that funds accessed through overdraft protection programs are not loans and do not require that fees be calculated and disclosed as an "annual percentage rate" under the Truth in Lending Act;

• Permits, but does not require, credit unions to obtain a written agreement from members to participate in an overdraft protection program, while recognizing the need to allow members to decline participation in the program if they so choose; and

• Does not impose new burdensome requirements on credit unions with which compliance would be difficult to achieve. This would include, but is not limited to, requiring new disclosures on automated teller machine transactions.

The Federal Reserve Board is also drafting new rules on overdraft protection plans. However, some member of the U.S. Congress, Dodd among them, have expressed frustration with the regulators' efforts.

Resource Links

CUNA Issues Summary: Overdraft

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