New legislation could help consumers with debt management

10.20.09
By Nicholas Storie

As millions of Americans continue to struggle with debt management, a prominent senator has unveiled legislation aimed at reducing the amount they pay on overdraft fees.

This week, Connecticut Democratic Senator Chris Dodd, chairman of the Banking Committee, announced that his new legislation would reign in fees that can approach $30 or more for accounts that overdraft by even a few cents.

"Banks should not be trying to bolster their profits at the expense of their customers," said Dodd, who added that his bill would shine "more light on these practices" while giving consumers greater control over their financial decisions.

As it stands right now, consumers who overdraft may not always be aware that they have done so, and lenders will often allow a transaction to clear anyhow for a fee. However, that fee often applies to each transaction that takes place when an account is overdrafted, which can cost consumers well over $100 by the time they check their balances. Some banks have also been criticized for manipulating the order in which transactions are processed to make overdraft activity more likely.

Critics of this and similar reform bills maintain that it's the responsibility of consumers to know at all times how much money they have in their accounts, and that banks are providing them with a service by allowing them to use their cards in such situations.

Meanwhile, some supporters of regulating debit card fees were disappointed that the issue was not addressed in the broad credit card reform bill that Congress passed earlier this year.

Specifically, the new Dodd legislation would require lenders to have customer approval before they are enrolled in an overdraft protection program. The customers would have to be notified before a fee was assessed, which would then give them the opportunity to opt out of a transaction. Lenders would also be limited in how many fees they could charge in a given time period and the fees would have to be proportional to the cost of the overdraft.

By spending less on fees and having more personal financial flexibility, some consumers may find such proposals useful in their overall debt management efforts.

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Debit card fees were not part of the credit card reforms that passed earlier this year.