Bank overdraft bill would ease fees

Associated Press / October 20, 2009

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WASHINGTON - Bank customers who overdraw their checking accounts would get new protections from excessive penalties under legislation proposed yesterday by the Senate banking committee chairman.

The measure unveiled by Senator Christopher Dodd, Democrat of Connecticut, would give people a choice in whether they want to participate in overdraft programs that charge fees for covering ATM withdrawals and debit card transactions.

Most banks now automatically enroll customers in overdraft programs. That means that a sale will go through if a person spends more than is in his account, but the customer will be hit with a fee, usually in the $25 to $35 range even if the overdraft is just a few dollars.

The unwary customer who makes several overdrawn purchases in a day could be charged a $35 penalty for each purchase.

Several major banks, in anticipation of congressional action, have already said they will start letting people opt out of overdraft programs. Some have also said they will lower their fees.

Dodd’s bill would:

■ Limit the number of overdraft fees banks can charge.

■ Require customers be notified, by e-mail, text, or mail, when they overdraw their account.

■ Require that customers be warned if an ATM or teller transaction will overdraw their account.

The bill also bars banks from issuing negative reports to consumer credit report agencies if an overdraft fee is paid under the terms of the program.

The overdraft proposal would follow similar legislation enacted last spring to protect consumers from high interest and penalty fees charged by credit card companies. Dodd noted that last month, after he said he was drafting the bill, three major banks - JPMorgan Chase, Bank of America, and US Bank and Wells Fargo, said they would undertake what Dodd said were “moderate’’ changes.

Bank of America said it won’t charge an initial fee for overdrafts under $10. A customer could still get charged the $35 fee for not bringing the account into balance within five days.