Earlier this month, I wrote about how overdraft fees are becoming more popular with banks finding ways to assess the fees more often, in tandem with raising what the customer owes each time — sometimes several within a day — an account is overdrawn. Laura Rowley’s latest column mentioned that a few congressmen are interested in restricting banks from certain practices.
Representatives Carolyn Maloney (D-N.Y.), Barney Frank (D-Mass.), and Julia Carson (D-Ind.) are sponsoring legislation (HR 946, or the Consumer Overdraft Protection Fair Practices Act) to protect consumers from abusive overdraft policies. The act contains four common-sense provisions to address some of the industry’s sneakier tactics. It would:
* Require written consent from the consumer before enrollment in an overdraft loan program.
* Require financial institutions to warn the customer when an ATM withdrawal will trigger a fee — and allow the customer to cancel the transaction at that time.
* Prohibit financial institutions from manipulating the order of check clearing or delaying the posting of deposits to increase customers’ overdraft loan fees.
* Amend the Truth in Lending Act to clarify that overdraft fees are finance charges, so that annual interest rates are reported. This would allow consumers to compare overdraft loans with other credit options — such as lines of credit, which typically offer annual interest rates of less than 20 percent.
I think these are good changes, but shouldn’t replace the account owner’s responsibility to know their account balances — or a rough estimate — at any given time, as well as his or her responsibility to keep their account in good standing.
Banks may not be too keen to list their one-time overdraft charges as an annual percentage rate. I’m not sure it makes sense to do so, either. Perhaps seeing a 99% APR would be enough to discourage people from mindlessly overdrawing their accounts.
When I looked at Gary Coleman’s advertising for Cash Call, I saw that these short-term or payday loan outfits are required to list their fees as annual percentage rates. Although they are one time fees for each loan, the nature of the loans make the fees comparable to other loans’ annual percentage rates.
Some of those rates were above 150% APR. I’d be interested to see how banks calculate an annual percentage rate based on overdraft fees.
Photo credit: aewolf
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