Update 623 — Saying Finito to Fees:
Overdraft Overhaul Bill Long Overdue
Next Wednesday, the House Financial Services Committee will mark up and vote on Rep. Carolyn Maloney’s Overdraft Protection Act of 2021. Maloney, consumer protection advocates, and progressive policymakers have long sought to rein in high and random bank overdraft fees. Per the Consumer Financial Protection Bureau, these fees comprise $16 billion a year in bank revenue. Those least able to bear them incur and pay these disproportionately.
The Congresswoman saw banks’ recent initiative to cut or curb their fees as the time to strike. The Committee has agreed to include the Overdraft Protection Act in a markup next week. While the odds in Committee are good, the bill has a slim margin for passage.
In today’s update, we cover the history of the Overdraft Protection Act, the upcoming Committee vote, and related CFPB actions.
For a deeper dive into issues with current bank fee practices, read Update 588: Focus on Bank Fees.
Good weekends all,
Dana
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After many years of work from consumer protection advocates, overdraft and non-sufficient funds fees are finally on the verge of being curbed. Recent pressure from the Consumer Financial Protection Bureau and additional research showing the disproportionate impact of overdraft fees on low-income consumers and communities of color put these fees under the spotlight. The heightened scrutiny and collaboration with advocates pushed dozens of banks to reduce or eliminate their fees. Congresswoman Carolyn Maloney built on this momentum to secure support for her Overdraft Protection Act of 2021 to establish reasonable and proportional overdraft fees, limit the frequency each month, and allow financial institutions to provide safe credit for those who need it.
Maloney, flanked by Senators Cory Booker and Elizabeth Warren, held a press conference last Tuesday to advocate for their legislation and bring the issue to the forefront of the consumer protection agenda. Her bill is now headed to the House Financial Services Committee’s July markup.
While inclusion in the markup is effectively guaranteed, the Overdraft Protection Act has a slim margin for passage. Supporters must use the momentum in both the public and private sectors to finally secure passage of a bill that should have been enacted ages ago.
The Long Road to Markup
Congresswoman Maloney first introduced the Overdraft Protection Act in 2009 and has been fighting for it ever since. Senator Booker became the Senate leader on this in 2018 and was joined by Senator Warren in 2021 with the introduction of their Stop Overdraft Profiteering Act of 2021.
The Overdraft Protection Act has its origins in the fallout of the 2008 financial crisis. Maloney saw the carnage left in the crisis’s wake and decided consumer credit extension reforms were necessary. This started with her Credit Card Accountability Responsibility and Disclosure Act of 2009 to add new protections for credit card holders.
Following this victory, Maloney moved to provide new protections for overdraft fees. In 2010, the Federal Reserve amended Regulation E to require opt-in standards for ATM and debit card overdraft fees. But these changes did not go far enough as they did not cover overdrafts on checks or automatic electronic payments, something Maloney and the Overdraft Protection Act would fix.
After over a decade of fighting, Maloney and consumer protection advocates secured the Overdraft Protection Act as part of the House Financial Services Committee’s July 2022 markup. While passage is not guaranteed, we can make a difference by reaching out to wavering Democrats to ensure the votes are there.
Ahead of the markup, Representative Maloney provided us with a succinct argument for the necessity of her legislation:
“Predatory overdraft fees drain billions of dollars from America’s poor and working-class communities every year. These fees are the product of years of price gouging and are a punitive practice that punishes low-income consumers for not having enough money. We must do more to protect consumers and work toward a financial system where consumers’ economic security is prioritized.” – Representative Carolyn Maloney
Whipping the Vote
Congresswoman Maloney and the consumer protection advocacy coalition brought other members in early and engaged with them on crucial amendments to build a broad coalition in support of the legislation. Nearly every single Democrat on HFSC has already committed to voting for the Overdraft Protection Act with 15 of the 30 Democrats on the Committee signing on as cosponsors.
Some members have not provided full-throated support. Following intense lobbying from financial institutions, a group of members is still wavering in their support for the Overdraft Protection Act. In addition, there are the 15 other Democrats who have yet to cosponsor the legislation.
If your member is not signed onto the bill, that means there is a non-zero chance they could vote against the Overdraft Protection Act in markup. To check if your member is on the House Financial Services Committee, use this link here; to check if they are a cosponsor of the bill, use this link here. The Find Your Representative tool provided by the House is another way to double-check your member and find easy links to contact his or her office.
Convincing these members to vote yes is absolutely critical as we are less than a week away from the markup. Those living in one of these districts can contact their representative to remind them that supporting the Overdraft Protection Act is not just good policy but also good politics.
Calling in the CFPB Cavalry
After the markup, the House should move expeditiously to pass this bill and place pressure on the Senate to act. With 60 cosponsors in the House, there is a great chance for this bill to pass, potentially with bipartisan support like the Credit CARD Act so many years ago: Republicans oppose the legislation in committee, but due to its popularity, support it on the House floor.
Passing the Overdraft Protection Act would be great politics. Grabbing headlines about cutting overdraft fees would be a boon for Democrats as we head toward the midterms where rising costs for households is the most important issue. It will also put every politician on the record about a crucial consumer protection measure, set a benchmark, and build momentum for the future.
However, we must consider the likely scenario of inaction from the Senate. In this case, the CFPB must take steps to mitigate overdraft fees and provide relief to consumers.
The CFPB has already outlined what these steps are:
- Crackdowns on Blatant Violations: The agency would move to issue penalties and take action against financial institutions and executives that violate currently existing overdraft laws and regulations and issue new guidance defining illegal practices.
- Increased Scrutiny: The CFPB’s bank examiners have been instructed to increase the supervision of financial institutions with a heavy reliance on overdraft fees. The increased scrutiny will generate new public data to allow consumers to better protect themselves from these predatory practices.
- Open Banking Infrastructure: The agency is hoping to channel the benefits of competition and technology to allow consumers to more easily choose who they want to bank with, providing immense incentive for financial institutions to cut their overdraft fees.
Increased pressure from policymakers and advocates has already pushed financial institutions to reduce or eliminate their overdraft fees. But this is not enough. Wall Street and the big banks could still return to their previous overdraft practices. Congress can head them off at the pass and mandate further forswearing of fees.