The House Financial Services Committee Approves Controversial Legislation to Limit Overdraft Fees

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On Thursday, July 28th, the House Financial Services Committee approved H.R. 4277, which would limit the amount of overdraft fees banks, credit unions, and other financial institutions can charge their clients.

The bill, which narrowly passed with a close vote of 27-22, was introduced in June 2021 by Representative Carolyn B. Maloney (D-NY) who believes overdraft fees do more harm than good.

“Overdraft fees are predatory and hit hardest those who can least afford them—cash-strapped hardworking Americans and college students who are struggling to pay their bills, keep a roof over their heads, and food on the table,” Maloney stated.

If the bill passes, financial institutions will need to adhere to new rules regarding overdraft fees. Specifically, they would be prevented from charging consumers more than one overdraft fee per month and more than six in a year in what many feel is a drastic overcorrection of the problem.

Furthermore, the legislation calls for financial institutions to directly lay out the terms of their overdraft charges and clearly state the possible results of opting out of the overdraft program such as denied transactions. It also would authorize the Consumer Financial Protection Bureau to issue rules within 18 months of the enactment of the legislation.

However, the bill faces an uphill battle in the Senate as Republicans strongly oppose the legislation and claim Democrats are merely passing the legislation—and the many others approved in the same meeting—in preparation for elections in the fall. In fact, House Financial Services Committee member Patrick McHenry (R-NC) promises the bills are “going nowhere.”

Republicans are not the only ones against the bill. Credit union groups such as CUNA and NAFCU oppose the legislation and claim it does not protect consumers but instead leaves them open to declined transactions and unpaid bills.

Both organizations are urging the government to let credit unions decide how best to work with overdraft policies as credit unions are subject to regulatory compliance, to begin with, and have opt-in and -out options for their members.

NAFCU Vice President of Legislative Affairs Brad Thaler added, “NAFCU believes that the best option for policymakers is to let the market for these programs evolve without artificial government intervention to stymie consumer choice. If policymakers are concerned about consumer information, the focus should be on increasing educational resources for consumers and improving consumer disclosures with these programs, not eliminating these programs altogether.”

President/CEO of CUNA Jim Nussle reached out to the committee on the issue, writing, “Irrespective of innovations in overdraft, credit unions have a track-record of establishing policies and procedures aimed at assisting members that frequently use overdraft protection. When a credit union becomes aware of a member’s frequent overdraft usage, they often attempt to contact the member to address the member’s financial situation and offer financial education support or alternative credit products.”

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