U.S. Senate Banking Committee Chairman Chris Dodd tells The Buffalo News he is drafting legislation that would require banks to get customer permission before automatically enrolling customers in an overdraft service. Similar legislation, the paper reports, is pending in the House of Representatives.
Last week, Chase and Bank of America said they were changing their overdraft policies to give their customers more choice. As the use of debit and ATM cards has grown, many U.S. banks began automatically extending overdraft protection when accounts could not cover the transactions. Banks increased their income by charging fees every time they covered overdrawn accounts. Critics say the banks offered this service to merely generate the highest fee income, by processing the largest transactions first so that accounts would hit zero more quickly, ultimately leading to the potential for more fees to be charged.
Maxine Given of Baltimore County, Md., last month sued M&T Bank for allegedly violating Maryland's consumer protection laws through its overdraft program. Given was charged $370 in fees by M&T.
But Carol Kaplan, a spokeswoman for the American Bankers Association, says overdraft fees are stiff because they are meant to discourage consumers from overdrawing funds from their accounts.
