New rules proposed in Congress for overdraft charges

Earlier today, Senators Chris Dodd, Jack Reed, Charles Schumer and Sherrod Brown unveiled a long awaited bill that will, if enacted, make it harder for banks to lob overdraft fees at their customers.

If the Fairness and Accountability in Receiving (FAIR) Overdraft Coverage act passes, it will do many things, including:
  • require banks to warn customers if a withdrawal made at an ATM or bank branch will overdraw their account.
  • keeping banks from processing debits to make it likely that more transactions will incur "bounce" fees
  • require overdraft fees to be in proportion to the bank's costs in processing them
  • forbid banks from automatically enrolling customers in overdraft programs without their permission
  • prohibit banks from including overdraft protection in a statement of the customer's available balance
  • limit the number of overdraft fees that banks can charge from one per month to six per year

Whatever you think of overdraft protection -- that it's needed or not -- it's clear that banks are making a mint from these fees. Brown, a Democratic Senator from Ohio, said that the Buckeye State alone paid nearly $900 million in overdraft charges last year. I've made this comment in a WalletPop post before, but I can't help seeing the potential overdraft fees savings of 2010 as a much-needed jolt to the economy.

If Moebs Services, the research company, is right about its often-quoted $38.5 billion that will be spent on overdraft charges this year alone ... well, just think where that $38.5 billion might be spent next year -- at restaurants, shopping malls, grocery stores, put into savings accounts ...

So it'll be interesting to see where this all goes. For now, this is just pending legislation, but with a Democratic-controlled Congress and a Democratic president, it seems likely that overdraft charges are going to become near extinct, which, of course, begs the question: What on Earth will the banks come up with to replace them?
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