NEW: State Lawmaker Wants to Regulate Overdraft Fees
Tuesday, March 27, 2012
At a time when Rhode Islanders are struggling with debt and unemployment, bank practices such as excessive and multiple overdraft fees are adding to the problem, leading to growing financial distress, said Sen. James C. Sheehan.
Senator Sheehan (D-Dist. 36, Narragansett, North Kingstown) has again this legislative session introduced a bill to throttle back bank overdraft fees, in the interest of protecting consumers.
The bill, 2012-S 2437, would limit the amount that financial institutions (banks, credit unions, etc.) could charge as fees for various or multiple overdrafts.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTAs proposed in the Sheehan bill, financial institutions would not be allowed to charge an overdraft fee for any overdraft amount less than $10 in one calendar day. The bill would also limit banks to a total of three overdraft fees per day, unless the total overdraft amount exceeds $100. Lastly, the bill would mandate that banks and credit unions allow customers to “opt in” to a program that would prohibit banks from re-ordering transactions from largest to smallest, requiring that debits be taken chronologically.
Senator Sheehan said that financial institutions have employed manipulative tactics to increase their profits, such as re-ordering transactions from largest to smallest so they can charge as many overdraft fees as possible. For example, he said, if a person purchases four items on a given day in the following order without knowing there is only $40 in the account – a sweater for $20, a soda for $1.75, gum for $1 and a pair of pants for $45 – banks can reorder the purchases from largest to smallest in order to charge four overdraft fees, when, in fact, it is only the fourth purchase that causes an overdraft.
“Overdraft fees may be a legitimate mechanism for banks to deal with customers who, inadvertently or otherwise, bounce a check or debit from time to time,” said Senator Sheehan. “But it should not be a mechanism to allow financial institutions to gouge their customers, and the process that many institutions are following seems like nothing more than an arbitrary, made-up procedure to collect more fees.”
“Consumers need protection from excessive and what I would consider unfair fees that place them further and further into debt. This is a matter that urgently needs to be addressed as many people are struggling through this recession and cannot afford to pay these exorbitant fines,” he said.
