- Lawmakers debated whether or not the government should step in to curb the controversial banking practice of charging overdraft fees at a hearing Thursday by the House Financial Services Committee.
- Lawmakers split along partisan lines, with Democrats arguing that overdraft fees negatively affect low-income and minority families, and Republicans saying the service represents a valuable alternative to more predatory forms of short-term lending. .
- Committee Chair Maxine Waters, D-CA, released a bill require banks with assets of $10 billion or more to offer customers and prospective customers accounts without fees for overdrafts or declined transactions, among other stipulations.
As some of the largest banks in the US, including Wells Fargo, Bank of America, Citi and Capital One, institute sweeping changes to their overdraft policies, lawmakers and advocates are divided on whether the government should intervene to curb the practice among industry holdouts.
“Overdraft fees are paid the most by people who can least afford them,” said Elyse Crawford-Hicks, a consumer policy adviser at the progressive nonprofit Americans for Financial Reform.
“The banking industry should do some soul searching and ask, ‘What are we going to do about the racial inequality and exclusion caused by overdraft fees?’ The imposition of overdraft fees at the expense of poorer people of color in places like the South Bronx flatly contradicts all notions of fairness and inclusion,” Rep. Ritchie Torres, D-NY, said at the hearing.
The draft legislation that Waters issued Thursday would require all banks with $10 billion in assets or more to provide accounts with a number of features, including fee-free debit cards, a minimum opening deposit of less than $25, no overdraft or insufficient fund. fees, free in-network ATM access and a $2.50 limit on out-of-network ATM fees, free direct deposit access and more.
In June, Rep. Carolyn Maloney, D-NY, reintroduced another bill: the Overdraft Protection Act– that would combat banks’ ability to impose overdraft fees.
And more recently, the Consumer Financial Protection Bureau (CFPB) declared war on “junk tariffs”, including overdraft. Under the leadership of director Rohit Chopra, the financial watchdog said it will focus on combating an emerging “fee economy” that preys on consumers in the banking sector.
However, lawmakers on the opposite side of the aisle argue that consumers benefit from access to overdraft services and that the government should not interfere with the practice.
“The actions of this committee, of financial regulators, are aimed at reducing the ability of consumers to access short-term liquidity financial products. I ask my colleagues, where are the 40% of American consumers supposed to go? when do you need a $40 loan?” Rep. Blaine Luetkemeyer, R-MO, said at the hearing.
Overdraft advocates have emphasized the need to choose from a variety of short-term loan options, so consumers aren’t forced to turn to payday lenders.
“Consumers should be able to choose between revolving credit services, installment loans, lump sum loans and overdraft protection,” said the American Bankers Association. in a sentence Thursday to the subcommittee.
“The market naturally takes care of the problem without government intervention. And we don’t need more rules from Washington,” said Rep. Roger Williams, R-TX.