Democrats Promise Overdraft Fees Crackdown

Summary: There’s a brewing backlash on Capitol Hill against the banks charging late fees for overdrafts even without telling the customers. Even if the struggling banks continue to be reliant on fees, congressional Democrats target overdraft fees and push new restrictions this spring on credit cards.

Bank fees total approximately $38.5 billion only for this year.

Congressional Democrats are using words like “rip-off” and “criminal” to describe the banks’ practice of allowing people to overspend and then eventually charging fees without any warning. Consequently, most of these overdrafts are now on debit and credit card transactions.

Senator Christopher Dodd (D-Conn.) now plans to introduce a legislation that requires banks to get the customer’s permission, instead of allowing drafts automatically. So if the customers decline and they overspend, the transactions would automatically be declined. He said, “Out there, people are getting wacked. They should be given the right to automatically deny the transaction.”

In the House, a similar bill is also pending. Some Congress members see an immediate action in these areas and were outraged when banks raised the fees and squeezed consumers for money. According to a financial research firm, Moebs Services, large banks’ overdraft fees on average was raised to 4% this year.

On the other hand, industry groups argue that it should be the responsibility of customers to monitor their account balances. An overdraft (money advanced automatically if the debit or credit limit has been reached) is a part of the bank’s services but it does not need to happen unintentionally if there’s proper supervision on the part of the customers. They say that the government officials are dismissing concerns on the impact of these proposals to the ailing banks.