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With the signatures on the Credit Card Accountability Responsibility and Disclosure Act of 2009 barely dry, there’s already a new bill in both the House and Senate to amend the Truth in Lending Act of 1968. The proposed legislation will provide assistance to consumers from the additional effects of CARD and provide additional consumer protections in regard to overdraft protection fees charged by financial institutions

On Friday, October 30, 2009, the House Financial Services Committee held a hearing on the Overdraft Protection Act known as HR 3904 that was introduced by Rep. Carolyn Maloney, D-NY just days following a nearly identical bill, FAIR Overdraft Coverage Act of 2009 S-1799, introduced by Senate Banking Chairman Chris Dodd, D-CT. If enacted H.R. 3904 and S-1799 would prohibit financial institutions from charging more than one overdraft fee per month and no more than six in a given calendar year, per transaction account

Both bills treat non-sufficient funds fees as overdraft fees. The overdraft fees are also consider finance charges under the Truth in Lending Act. H.R. 3904, the Overdraft Protection Act that amend the Truth in Lending Act, to do the following

• require that consumers must opt-in, in writing, before they are enrolled in overdraft coverage programs on every type of transaction;
• prohibit depository institutions from charging more than one overdraft per month and more than six overdraft fees in a single year;
• require that overdraft fees relate to the ‘actual cost’ of processing the overdraft, as defined by bank regulators;
• prohibit charges for ATM and debit card transactions that are declined;
• regulate the order in which transactions are paid;
• require notification if a transaction at an ATM would trigger an overdraft fee and offer the consumer the chance to cancel the transaction before a fee is incurred; and
• require the Government Accounting Office to study the feasibility of providing an overdraft warning notice and the opportunity to cancel the transaction for point-of-sale transaction

Testimony from the hearings included some interesting statistics from the Center for Responsible Lending (CRL) and the Consumer Federation of America (CFA)

“Total overdraft fees have increased do to both an increase in cost and an increase in frequency:
Cost. From 1997 to 2007, the average overdraft fee charged by financial institutions increased from $16.50 to $29.60 with the average fee paid by consumers being $34.70 per overdraft transaction.

The additional legislative steps will help consumers to maintain better control of their financial lives. Currently consumers do not authorize or apply for ‘overdraft protection’ from their financial institution. They are not warned when a transaction is about to trigger an overdraft, and are not given the choice to borrow the funds (at a high interest rate) or to simply cancel the transaction. Bank fees can mount quickly into the hundreds of dollars for a single overdraft incident, causing significantly more harm than the initial overdraft. Passage of the HR 3904 and S. 1799 will help stop the abuses from banking institutions while putting the consumer back in the driver’s seat with regard to their financial lives.