Sen. Chuck Schumer is upping the ante on overdraft fees, demanding that the Federal Reserve impose much stricter rules about how banks go about charging customers whose withdrawals exceed their checking account balances.
The New York Democrat sent a letter Friday to Federal Reserve Chairman Ben Bernanke, asking the Fed to write a rule that requires consumers to “opt in” — proactively choose to be enrolled in an overdraft protection program — rather than “opt out” as the Fed is considering.
On the fee issue, Schumer wrote: “Protection from excessive fees means that fees are reasonable and proportional (no $35 charges for $2 transactions); consumers are not subject to recurring fees that can amount to hundreds of dollars over just a few days; and there is a strict limit on the number of fees consumers can be charged in a year.”
“The Fed is finally ready to act on this abusive practice, but so far, it doesn’t look like their reforms will go far enough to protect consumers,” Schumer said in a statement. “Making overdraft protection policies truly voluntary for customers would be a good first step, but even that is not enough. This practice needs to be totally reined in.”
Cracking down on overdraft fees is the latest pro-consumer push gaining traction on Capitol Hill. Senate Banking Chairman Chris Dodd (D-Conn.) is writing legislation to crack down on the practice, which he plans to introduce as early as this month. Schumer said he will co-sponsor that bill.
Banks collected close to $24 billion in overdraft fees last year, up 35 percent from two years ago, according to a recent study by the Center for Responsible Lending.
Schumer cited that figure in his letter to Bernanke. “This is an unacceptable way for banks to soften the blow of the financial crisis, by placing the burden on those least responsible for the crisis and least able to afford it.”