Sen. Cory Booker has proposed legislation that would prohibit financial institutions from charging overdraft fees on debit card transactions and ATM withdrawals.
The bill would also restrict the frequency of these charges on check payments.
“It’s been well-documented for many years that banks have used a variety of methods to push people into incurring overdraft fees to boost their income,” said Lauren Saunders, an associate director at the National Consumer Law Center, who helped work on the legislation, according to Vox. “They do a lot to push huge costs on the people least able to bear them.”
One study found that 18 percent of account holders pay more than 90 percent of overdraft and insufficient funds fees collected. And the Consumer Financial Protection Bureau revealed that the majority of frequent overdrafters have lower credit scores and daily balances, with almost seven in 10 making less than $50,000 per year.
“Overdraft fees can push people out of the banking system,” Saunders said. “Things get out of control, they lose their banking accounts. People who are living paycheck to paycheck, it makes it harder for them to manage their money, more expensive for them to be in the banking system.”
And over the year, financial institutions have seen the fees contribute to a huge chunk of their income. In 2016, U.S. customers paid roughly $15 billion in overdraft and bounced check fees. That’s the equivalent of nearly 10 percent of the net income that banks made in that year.
“It’s been such a cash cow for banks. They’re deeply committed to their overdraft revenue,” said Rebecca Borne of the Center for Responsible Lending, who also contributed to the bill.
Booker’s legislation is called the Stop Overdraft Profiteering Act of 2018.
“Overdraft fees fall on those least likely to be able to afford them — individuals for whom a $35 overdraft charge could push them over the brink into financial ruin,” Booker said in a statement. “Our bill would end these unfair practices many banks use that leave some consumers — especially those that are the most vulnerable — trapped in a vicious cycle of poverty.”
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