Senate Banking Committee Chairman Christopher Dodd said he will propose legislation to regulate overdraft fees.
Dodd's bill would require customers to "opt-in" to banks' overdraft protection programs, prohibiting lenders from automatically enrolling their customers in the plans, according to a statement Friday.
"Excessive, automatic overdraft fees are forcing many American families deeper into debt at a time when they are already struggling to make ends meet," said Dodd, D-Conn., in the statement. "I am working on a bill to protect consumers from these fees."
Charges related to overdrawn U.S. accounts may rise to $38.5 billion this year from $36.7 billion in 2008, according to data compiled by research firm Moebs Services Inc. in Lake Bluff, Illinois. Bank of America Corp. in Charlotte, N.C., the largest U.S. bank, charges customers $35 for transactions greater than $5 that have insufficient funds.
Customers are shifting to debit transactions from charge cards as credit lines have been lowered and banks have closed inactive accounts. Debit cards will be used in 60.2 percent of card transactions in 2010, or about $40 billion, up from 58.2 percent in 2008, according to the Nilson Report, an industry newsletter in Carpinteria, Calif.
Dodd asked the Federal Reserve to allow consumers to "opt-in" on fees charged for overdrawing their bank accounts in June. He said consumers would be better protected if regulators prohibited "excessive and unfair" fees for overdrawn accounts unless consumers consent.
Rep. Carolyn Maloney, D-N.Y., introduced legislation in March that would require consumer consent for overdraft protection and alert consumers at the point of sale about insufficient funds.
The Fed will require all banks to disclose how much customers have paid in overdraft fees on statements beginning Jan. 1. It's also considering whether institutions should be able to automatically enroll consumers in fee-based overdraft programs without obtaining prior consent, or allow consumers to opt out of coverage.
Eighty-two percent of bank customers did not pay an overdraft fee in the previous twelve months, according to an August survey conducted for the Washington-based American Bankers Association. Peter Garuccio, a spokesman for the group, declined to comment on Dodd's plan because he hadn't seen the language of the bill.
Dodd's plan to introduce overdraft legislation was reported earlier by the American Banker.