Rep. Maloney Unveils Bill to Cap Overdraft Charges

September 16, 2019 at 9:20 am 2 comments

Prominent New York City Congresswoman Carolyn Maloney recently introduced the Overdraft Protection Act of 2019. As a long-serving member on the House Financial Services Committee, with a long history of engaging on important consumer protection issues, her proposal should of course be taken seriously. It would have a substantial impact on many credit unions.

The bill would generally cap the fees that can be charged on all forms of overdrafts and impose additional disclosure requirements on financial institutions. This is great news as I have always thought that what the Truth in Lending Act needs is more mandated disclosures.

The legislation would have quite the operational impact on your credit union if you charge overdraft fees. Specifically, you could not charge a member more than one “overdraft coverage fee” in any single calendar month and “not more than six overdraft coverage fees” in any single calendar year on any single transaction account. Furthermore, the amount of an overdraft fee would have to be “reasonable and proportional” to the amount of the overdraft. Presumably, deciding what is reasonable and proportional would be up to federal regulators.

To make sure your members have access to all this new information, your periodic statements would inform consumers of the dollar amount of all the overdraft coverage fees and insufficient fund charges for both the relevant period and for the year to date. And of course, the legislation makes it an unfair and deceptive practice to engage in deceptive marketing of these products. Plus, you would be mandated to give your members real time information about when an overdraft might be triggered. If a member is withdrawing money at a branch, the teller with whom they are dealing would have to inform them that their withdrawal would trigger an overdraft. Consumers would also be provided this information when making ATM transactions.

This is one of those classic issues where reasonable people ultimately have to agree to disagree. I’ve spoken to many credit union people over the years about this issue, and although there is some disagreement, many of them will tell you that the members who use overdraft protections most are not the victims of poorly drafted disclosures. More often, they are busy, disorganized consumers who willingly pay the fee to avoid bouncing checks.

Furthermore, caps don’t work. A bank product is like any other product, and to the extent that government tries to figure out what constitutes a reasonable fee, it is simply making it less likely that the service will be made available to consumers.


Entry filed under: General, New York State, Political. Tags: , , .

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2 Comments Add your own

  • 1. Michael Mattone  |  September 16, 2019 at 7:32 pm

    Agreed with the notion that a “cap” on a convenience product never works. In talking with some of the legislative offices, many folks mentioned the “negative balance” charge assessed by some larger FIs if you don’t pay back your overdraft in a certain period of time. I assume most – if not all – Credit Unions don’t assess this type of fee; or at least I hope not.

    Also, I’m quite certain that most FIs would just update their overdraft policies to not allow members to access their lines after using them once a month/six times a year, and disorganized members who would happily pay a fee would just end up with more NSFs.

    Great stuff as always Henry!

    • 2. Henry Meier  |  September 17, 2019 at 1:16 pm

      Glad tp see you are still reading the blog. Its been quite some time. Is the sleep depravation of being a new father getting to you?


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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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