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Legislation targets fees that can add too consumer credit debtNow, Senator Chris Dodd, a Connecticut Democrat who chairs the Banking Committee, is introducing new legislation that will follow up on these provisions by targeting the high overdraft fees that many financial institutions charge their customers. "Excessive, automatic overdraft fees are forcing many American families deeper into debt at a time when they are already struggling to make ends meet," said Dodd as he announced his new legislation. Under the legislation, financial institutions would have to create an opt-in program, where consumers would be able to have their cards simply declined for insufficient funds rather than paying a fee that can in some cases can run well over $30 even if an account is over-drafted by so much as a dollar. Dodd had previously been urging the Federal Reserve to enact such a provision. Financial institutions maintain that they are merely providing consumers with flexibility to make purchases and avoid the embarrassment of having their card declined at an inopportune time. The institutions also point out that it is the responsibility of their customers to stay aware of what their balances are. However, some critics have argued that lenders take steps to maximize their profits from overdrafts with practices like processing large purchases before smaller ones. According to the Center for Responsible Lending, financial institutions collect about $17.5 billion per year in these fees. The organization maintains that many of these overdraft fees can be prevented if consumers are warned or have the transactions denied, and has reported that the average overdraft is less than half the amount of the average $34 overdraft fee.
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