U.S. PIRG Consumer Blog: Bounce protection loans/debit cards under committee microscope

Chairwoman Carolyn Maloney (D-NY) of the House Subcommittee on Financial Institutions and Consumer Credit is holding a hearing today on unfair bank overdraft fees and their impact on consumers, especially in regard to debit card transactions. A number of consumer advocates will document that so-called over-draft protection "features" in bank accounts should be more strictly regulated as loans, not fees; that the fee income now totaling billions of dollars in bank overdraft revenue is essentially no different than payday loan sharking; and that multiple $35 fees are unfairly heaped on consumers for their supposed $5 overdrafts (which sometimes occur only because the bank manipulated the order of received checks it posts each night or perhaps unfairly held for several days a deposited check it knew was good).

Chairwoman Maloney has introduced HR 946, the Consumer Overdraft Protection Fair Practices Act. The bill would take numerous important steps to rein in unfair overdraft practices, including a prohibition on allowing a consumer to overdraft his or her account in a debit point of sale transaction, unless the merchant's machine were set up to ask consent. As I recently told the Wall Street Journal: "It's much easier to overdraw your (debit) account. A debit card gives you a latte if you have no money. A latte costs $5 but the bank gets a $30 overdraft."

Post-hearing Notes: Well, the formidable consumer team of Eric Halperin of the Center for Responsible Lending, Chi Chi Wu of National Consumer Law Center, Jean Ann Fox of Consumer Federation of America and Sarah Ludwig of Neighborhood Economic Development Advocacy Project, joined by credit union executive Mary Cunningham, President & CEO, USA Federal Credit Union, on behalf of the Credit Union National Association, certainly won the hearing on a knockout over the two bank industry representatives, who were fighting with one hand tied behind their backs -- I mean, how do you defend an unfair and deceptive practice that enriches banks at the expense of the poor and middle class? You cannot.

The hearing featured the results of a new report by Eric's group, CRL. Out of Balance's chief finding: U.S. banks and credit unions are using abusive overdraft loans to generate $17.5 billion in fees each year. I'd encourage you to read all the advocates' powerful testimony. Mary Cunningham, in particular, talked about how her credit union implemented bounce protection and found it to be a horrible product that hurt its members. So, it then revised its overdraft policies to be a "fair deal" for members.