The US Senate Committee on Banking, Housing and Urban Affairs is holding a hearing this afternoon on the subject of "Protecting Consumers from Abusive Overdraft Fees: The Fairness and Accountability in Receiving Overdraft Coverage Act". The witnesses will be: Mr. Mario Livieri, Consumer, State of Connecticut; Mr. Michael Calhoun, President, Center for Responsible Lending; Mr. Frank Pollack, President and CEO, Pentagon Federal Credit Union; Mr. John Carey, Chief Administrative Officer, Citibank NA; and Ms. Jean Ann Fox, Director of Financial Services, Consumer Federation of America. READ MORE

Over on our PaymentsViews.com blog, Glenbrook's Carol Coye Benson reflects on yesterday's announcement by the Federal Reserve of new rules prohibiting banks from charging overdraft fees on debit card and ATM transactions without first obtaining consumer opt-in. Carol speculates on what retail banks will do to deal with the potential loss of overdraft fee revenue that could result.

The Federal Reserve Board has announced final rules that prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.

Before opting in, the consumer must be provided a notice that explains the financial institution's overdraft services, including the fees associated with the service, and the consumer's choices. The final rules, along with a model opt-in notice, are issued under Regulation E, which implements the Electronic Fund Transfer Act and are effective July 1, 2010. READ MORE

In its SEC 10-Q filing today, Wells Fargo estimated that the impact of its new overdraft fee policies will be a $300 million after tax reduction in its fee revenue for 2010.

Quoting: "We recently announced policy changes that will help customers limit overdraft and returned item fees. We currently estimate that these changes will reduce our 2010 fee revenue by approximately $300 million (after tax), although the actual impact could vary due to a variety of factors including implementation timing and customer behavior in response to the policy changes."

Congressional proposals to rein in abusive overdraft practices are long overdue, Center for Responsible Lending executive Eric Halperin told the House Financial Services Committee today (full testimony). Halperin, who is director of CRL's Washington office, gave full support to legislation aimed at reforming bank overdraft programs, which cost consumers $23.7 billion last year and are among the most predatory lending products on the market.

"Charging people a $35 fee for a small, debit card transaction is unacceptable," said Halperin, director of CRL's Washington office. "It doesn't save them bounced check fees, it simply skims money from their account and puts them in a bind."

Lieff Cabraser Heimann & Bernstein, LLP today announced the filing of a series of nationwide class action lawsuits against Bank of America, Wachovia, U.S. Bank, JPMorgan Chase and Citibank in the United States District Court for the Southern District of Florida in Miami for abusive overdraft fees. READ MORE

Senator Chris Dodd has announced the The Fairness and Accountability in Receiving (FAIR) Overdraft Coverage Act, a new bill he is introducing to "protect Americans from excessive checking account overdraft fees." READ MORE

Last week, WAMU's DIane Rehm hosted a program focused on Consumer Credit Protections - including overdraft fees. Participants included Kathleen Day, Center for Responsible Lending, Diane Casey-Landry, Chief Operating Officer, American Bankers Association, and Nancy Trejos, Washington Post Personal Finance Writer. I was surprised at some of the lack of understanding about how debit cards actually work - as expressed by one participant in particular on this program!

A strongly worded New York Times editorial today titled "Bleeding Holders of Debit Cards Dry" notes that several banks last month announced changes to their overdraft policies - but says those changes aren't enough. Citing yesterday's report from the Center for Responsible Lending that estimated that "banks and credit unions raked in nearly $24 billion in overdraft income in 2008" and noting that "American families now spend more on overdraft fees every year than on books, breakfast cereal or fresh vegetables and only slightly less than they spend on major appliances," the editorial advocates stronger Congressional action.

The Center for Responsible Lending has published a new study finding that US banks and credit unions collected nearly $24 billion in overdraft fees last year, an increase of 35 percent from two years earlier. READ MORE

Bankrate.com has published results from a new study of bank fees showing that the costs of checking accounts have risen again this year to an all-time high. Bankrate's 2009 Checking Study details the average fees associated with using and maintaining an interest bearing account, including bounced check fees, ATM surcharges, and monthly services fees, plus tips on how to avoid them. READ MORE

The rage around bank overdraft fees continues with an article titled "Overdraft 'Protection' Is Anything But" by Michelle Singletary in today's Washington Post.

She writes: "Clearly, people should be more responsible. But once again, financial services institutions have crossed the line of fairness. And to be honest, the federal government has helped them along. The federal agencies that regulate the industry determined several years ago that overdraft protection programs were not extensions of credit, a ruling that was ridiculous."

U.S. Bank has announced a series of modifications to its service charge policies on checking accounts that will take effect in the first quarter of 2010. The changes include eliminating overdraft fees when a customer's account is overdrawn by less than $10, limiting the number of overdraft fees to no more than three per day and offering "opt out" to customers who would prefer to have transactions declined rather than pay overdraft fees. READ MORE

In this evening's program, the NewsHour with Jim Lehrer featured a segment titled "Banks, Customers Face Changes to Debit Card Overdraft Fees". The NewsHour's Jeffrey Brown interviewed Ron Lieber from the New York Times - here's the transcript.

In an article titled "Chase and Bank of America Revise Fee Policies", Ron Lieber writes for the New York Times about announcements from Bank of America and Chase regarding changes both banks are planning to their overdraft fee policies.

In a press release, Bank of America announced changes to be implemented October 19 including not charging overdraft fees when a customer's account is overdrawn by a total amount less than $10 for one day, not charging overdraft fees on more than four items per day and making it easier to opt out of overdrafts altogether. Next June, the bank plans additional changes including providing customers a choice with respect to opting in or out of overdraft capability.

According to Lieber's reporting, Chase is planning changes in the first quarter including not charging a fee when the overdraft is for less than $5 and not sorting items in descending amounts prior to posting - a technique that maximizes the overdraft fees charged and has drawn criticism from consumer groups. Chase also plans to allow its customers to opt out of overdraft coverage.

In an article titled "Democrats Target Bank Overdraft Charges", Binyamin Appelbaum and Nancy Trejos write for the Washington Post about how a backlash against the banks continues with congressional Democrats planning a "crackdown on overdraft fees" - most of which are associated with debit card transactions.

In an article titled "Overspending on Debit Cards Is a Boon for Banks" in today's New York Times, Ron Lieber and Andrew Martin write about the fees banks charge on debit card overdrafts - reporting that "this year alone, banks are expected to bring in $27 billion by covering overdrafts on checking accounts, typically on debit card purchases or checks that exceed a customer’s balance."

The New York Times today has an editorial titled "Debit Card Trap" on the subject of the overdraft fees that many banks collect on debit card transactions when there aren't sufficient funds in the consumer's checking account. The Times cites research by Moebs Services finding that banks in the US "will earn more than $38 billion this year from overdraft and bounced-check fees. Moebs also estimates that 90 percent of that amount will be paid by the poorest 10 percent of the customer base."

The Times is urging that regulators adopt new rules - currently under consideration by the Fed - that would require consumer opt-in and would require notification in real-time when a debit card charge is going to result in an overdraft fee being charged.

Neil posts on the Money.AU blog that the big four Australian banking groups are reviewing their overdraft fees "after their rival National Australia Bank (NAB) has decided to cease charging customers who end up overdrawing their bank accounts." The NAB said it will stop charging overdraft fees beginning October 1st.

According to research conducted by Moebs Services as part of its 22nd annual survey, "the national median for overdraft (OD) fees on consumer checking accounts, debit cards and ATMs increased to $26 per incident in 2009 from $25 per incident in 2008, a 4 percent increase, led primarily by Wall Street Banks – those with assets of more than $50 billion. These findings are the result of a just-completed nationwide survey of more than 2,000 commercial banks, savings institutions and credit unions." READ MORE

In Sunday's Washington Post, writers Nancy Trejos and Jonathan Starkey look at what's been happening to bank fees - noting that "your bank wants more of your money, and it's found a way to get it: by jacking up the fees on your account."

Examples? "Bank of America this year raised the maximum number of times customers can get hit with overdraft fees from five a day to 10. On top of that, it began charging a one-time fee of $35 if the account remains in the negative for more than five days."

More here.

In a letter today to Fed Chairman Ben Bernanke, Senator Chris Dodd, Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, urged the Federal Reserve to act as soon as possible to protect consumers from abusive overdraft fees. Dodd called on the Fed "to finalize a proposed rule that would curb the use of excessive and unfair fees when consumers overdraw their bank accounts. Dodd further pressed the Fed to implement an “opt-in” approach to overdraft fees, which would ensure that banks would be prohibited from charging consumers an overdraft fee without their consent."

A new Center for Responsible Lending survey finds that U.S. consumers overwhelmingly want to be asked their preference before a bank or credit union enrolls them in a program to cover debit card purchases when they do not have the funds. READ MORE

In this morning's USA Today, Kathy Chu examines the practices of US banks with respect to how they handle overdrafts on checking accounts, how they clear checks, and more. She lists automatic enrollment, high-to-low clearing, confusing statements, and other practices as reasons consumers need to be careful about managing their checking accounts and debit card usage. Included in the story is a survey of the overdraft practices of the top 10 US banks.

The Federal Reserve's proposed changes to Reg. E intended to provide consumers a choice regarding their institution's payment of overdrafts for ATM and one-time debit card transactions were announced last December.

Comments on the proposed changes can be submitted electronically on the Fed's web site. To date, the Fed has received over 1,600 comments.

On Thursday, the House Subcommittee on Financial Institutions and Consumer Credit held a hearing on H.R. 627, the Credit Cardholders' Bill of Rights Act of 2009 and H.R. 1456, the Consumer Overdraft Protection Fair Practices Act of 2009. READ MORE

Banks shouldn’t be allowed to automatically enroll their customers in expensive overdraft loan programs, according to Consumers Union, the nonprofit publisher of Consumer Reports. The group urged the Federal Reserve Board in a letter today to require banks to get their customers’ permission first before signing them up for high fee overdraft loan programs for overdrafts triggered by ATM and debit transactions. READ MORE

The Center for Responsible Lending has put out a press release noting that Federal banking regulators last week "withdrew proposed rules that would have largely failed to protect consumers from astronomically high-cost, unsolicited overdraft loans. The Fed then immediately issued a new proposal containing two alternative approaches. The impact the new proposal will have on abusive fees depends primarily on which approach the Fed ultimately chooses." READ MORE

The Federal Reserve Board also announced today that it is separately proposing rules to protect consumers that use overdraft services offered by their bank. The rule solicits public comment on proposed amendments to Regulation E (Electronic Fund Transfers) intended to provide consumers a choice regarding their institution's payment of overdrafts for automated teller machine withdrawals and one-time debit card transactions. The Board is proposing two alternative approaches to providing consumer choice, including a proposed requirement that would require institutions to obtain consumers' affirmative consent (or opt-in) before any overdraft fees or charges may be imposed on consumers' accounts. The comment period for the Regulation E proposal ends 60 days after publication in the Federal Register.

In a related move, the Board is adopting final amendments to Regulation DD (Truth in Savings) to address depository institutions' disclosure practices related to overdraft services. The effective date for the final rules adopted under Regulation DD is January 1, 2010.

Here are some interesting findings from the Executive Summary in the FDIC's Study of Bank Overdraft Programs released on Monday:

• A significant share of banks (24.7% of all surveyed banks and 53.7% of large banks) batched processed [sorted] overdraft transactions by size, from largest to smallest, which can increase the number of overdrafts.
• More than half of banks with automated overdraft programs (54.2%) reported that they relied on a third-party vendor to implement or manage the program.
• Most banks using vendors to manage their automated overdraft programs (70.6%) also reported that they paid third-party vendors a percentage of the fees generated by the program, typically 10 to 20 percent of additional fees generated.
• Almost half (48.8%) of all reported NSF transactions took place at POS/debit (41.0%) and ATM (7.8%) terminals. Checks accounted for 30.2% of the reported NSF (nonsufficient fund) transactions.
• Accounts held by young adults (ages 18 to 25) were the most likely among all age groups to have automated overdraft NSF activity. Among young adult accounts, 46.4% incurred NSF activity, compared with 12.2% of accounts held by seniors (over age 62) and 31.9% of accounts held by other adults.
• Assuming a $27 overdraft fee (the survey median), a customer repaying a $20 POS/debit overdraft in two weeks would incur an APR of 3,520%; a customer repaying a $60 ATM overdraft in two weeks would incur an APR of 1,173%; and a customer repaying a $66 check overdraft in two weeks would incur an APR of 1,067%.