Overdraft bill to end $35 cup of coffee and other bank reform highlights

Yesterday, I joined U.S. Rep. Carolyn Maloney (NY) and other leading members and consumer advocates in front of the U.S. Capitol to introduce the Overdraft Protection Act of 2012. At left I speak flanked by Rep. Maloney with Travis Plunkett of the Consumer Federation of America behind me. Although financial regulators imposed a requirement in 2010 that banks could not enroll consumers in the most bank-friendly overdraft scheme, known as “standard overdraft protection,” unless they affirmatively opt-in, much more needs to be done. Among the bill’s highlights, from Rep. Maloney’s website:

•     Requires consumer consent before banks can permit overdraft fees to paper checks, automated clearinghouse (ACH) charges and debit card swipe-terminal transactions on consumer accounts, and defines overdraft fees as finance charges subject to the Truth in Lending Act disclosures.  Current Federal Reserve rules require opt-in to overdraft fees only for debit card transactions.
•     Prohibits banks from manipulating the sequence in which checks and other debits are posted if it causes more overdrafts and maximizes fees paid to banks.
•     Requires that fees be ‘reasonable and proportional’ to the amount of the overdraft.
•    Caps the number of fees that can be charged at one per month and six per year.

Earlier this this year, the Consumer Financial Protection Bureau announced an overdraft inquiry (CFPB seeks your comments until June 29), but it is always better to have a law than an agency rule. Also, when regulators and Congress push simultaneously, usually both do a better, faster job. That’s what happened leading up to passage of the Maloney-led Credit CARD Act in 2009. Here is a story on the bill from consumer reporter Herb Weisbaum, aka The Consumerman, over at MSNBC.  In the lower photo, Rep. Maloney speaks, flanked by from left, Rep. Brad Miller (NC), Rep. Fredrica Wilson (FL), Rep. David Cicilline (RI) and Rep. Keith Ellison (MN). In back, next to me and Travis but hidden, is also Maura Dundon of the Center for Responsible Lending.

Other banking news: Also this week, the Consumer Financial Protection Bureau described a proposal to simplify mortgage points and fees. Comment periods will be announced soon. That link describes the details.

The website creditcards.com has issued the latest report in what has become a plethora of reports from various sources on prepaid card costs. Here is another recent prepaid report from Consumer Action. Advice from pretty much all the reports: Read the fine print. Be especially wary of the small  number (so far) of prepaid cards with a payday loan or overdraft function (both bad ideas). Remember also that a prepaid card has fewer consumer protections than a debit card associated with a bank account, which has fewer protections than a credit card (FDIC fact sheet). And, when you are a victim of fraud with a prepaid card, of course, it is your own money you are fighting to get back.

Back to the Credit CARD Act, Josh Frank of Center for Responsible Lending has a new report finding that “losses on credit cards in the current downturn mounted faster at banks engaging in unfair, deceptive practices. High-cost penalty fees and interest rates didn’t mitigate risk—as credit card issuers claimed—but instead were the risk that pushed consumers into hardship and default..” More from a HuffPo story by Catherine New.

As part of the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, U.S. PIRG supported the Senator Dick Durbin (IL) amendment to limit “interchange” fees imposed by banks on merchants that accept debit cards. The “swipe fee” amendment to restrict anti-competitive practices that force cash customers at the store to pay higher prices to subsidize bank customers and their rewards continues to be fiercely attacked by the banks in a series of misleading op-eds and so-called “reports.” Doug Kantor, an attorney for small merchants including convenience stores, strikes back with a Forbes op-ed “How Bank Fees Hurt Gas Station Owners.”  Meanwhile, the Canadian Competition Commissioner Melanie Aitken explains her agency’s (Canadian FTC) inquiry in a video on CBC (Canadian PBS) that could serve as a primer into the U.S. debate. She talks primarily  about credit card swipe fees. Note that the Durbin amendment limited but did not ban swipe fees on debit cards issued by large banks only. It did not restrict swipe fees on credit cards or prepaid cards issued by any bank or debit cards issued by banks below $10 billion. The Federal Reserve rule implementing the Durbin amendment ignored Congressional intent and weakened the rule at the behest of the big banks; the merchants have filed a lawsuit. Several banks have also filed counter-suits.