House Members Introduce Overdraft Fee Legislation

New York Congresswoman Carolyn Maloney recently introduced federal legislation, H.R. 4277, To amend the Truth in Lending Act to establish fair and transparent practices related to the marketing and provision of overdraft coverage programs at financial institutions, commonly referred to as the Overdraft Protection Act. The measure has been referred to the U.S. House Financial Services Committee for consideration and has 31 cosponsors including Massachusetts Congressmen Stephen Lynch and James McGovern, as well as Rhode Island Congressman David Cicilline.

The Overdraft Protection Act seeks to:

  • - Require overdraft fees to be reasonable and proportional;
  • - Limit overdrafts to one per month and six per year;
  • - Codify the opt-in provisions that the Federal Reserve promulgated, requiring that consumers opt-in to overdraft coverage;
  •  -Prohibit institutions from manipulating the order of transactions to maximize overdraft fees; and
  •  -Add additional disclosures to consumers about overdraft coverage programs.

Congresswoman Maloney has introduced overdraft protection legislation in each Congress since 2005. This new legislation differs from earlier bills by directing the Consumer Financial Protection Bureau to study pre-paid card overdraft programs and to limit the number of overdraft fees a consumer can incur. According to bill sponsors, the number of overdraft fees a financial institution can charge is capped under the bill, rather than placing any new requirements at point-of-sale, to simultaneously maximize protections to consumers and minimize the negative impact on retailers.

The text of the bill may be found at H.R.4277 - 117th Congress (2021-2022): To amend the Truth in Lending Act to establish fair and transparent practices related to the marketing and provision of overdraft coverage programs at financial institutions, and for other purposes. | Congress.gov | Library of Congress

In other related developments, Ally Bank is discontinuing the assessment of overdraft fees permanently, explaining that the penalty charges prompt customer anxiety and disproportionately affect people of color. Major U.S. retail banks recently faced renewed criticism during congressional hearings, testifying twice in one week, on overdraft and other fees accessed during the pandemic. The CEOs of JPMorgan Chase, Bank of America, Citigroup Inc and Wells Fargo highlighted their banks’ efforts to waive fees and offer more affordable accounts after Senator Elizabeth Warren led lawmaker questioning over their costs.

Last year, Congressman Cicilline and Congresswoman Maloney partnered together to introduce the Cicilline-Maloney Stop Overdraft Profiteering During COVID-19 Emergency Act of 2020 to address fees for the duration of the COVID-19 public health emergency. That measure sought to:

  • - Prohibit financial institutions from assessing overdraft fee or nonsufficient fund fee for any transaction, including at ATMs, at the register, or involving checks or recurring payments;
  • - Ban financial institutions from reporting consumers’ use of overdraft coverage to a credit reporting agency; and
  • - Allow financial institutions to extend a reasonable overdraft line of credit to consumers with insufficient funds.

Text of the Cicilline-Maloney Stop Overdraft Profiteering During COVID-19 Emergency Act can be found at H.R.6576 - 116th Congress (2019-2020): Stop Overdraft Profiteering during COVID-19 Emergency Act of 2020 | Congress.gov | Library of Congress

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