Lawmakers are determined to severely restrict checking account related NSF (non sufficient funds) and non-returned item fees, often called Courtesy Pay fees. It appears that this issue will be addressed sooner rather than later.
Sen. Chris Dodd (D-Conn.) introduced his version of overdraft protection reform legislation last week. S. 1799 would:
• require consumers to opt-in to their bank or credit union's overdraft protection program, and prohibit discrimination against consumers who do not opt-in.
• limit the number of fees that could be assessed to a consumer to one per month and no more than six per year.
• require fees to be proportional to the cost of processing the overdraft and prohibits the manipulation of debits in order to generate additional overdraft.
• Prohibit institutions from manipulating the order in which they post transactions in order to assess extra fees.
• require the overdraft fee to be considered a finance charge and disclosed to the customer as an annual percentage rate (APR).
APRs on these fees can easily reach 300%, 1000%, or more. Consider this very common scenario:. You have $99.00 in your account, then buy a $2.00 coffee on your VISA or Master Card debit card. The bank pays the check as opposed to returning it and you get hit with a $30.00 fee. Another $5.00 check comes in and you are hit with an additional $30.00; your $6.00 overdraft just cost you $60.00, a 1,000% APR.
On the other hand, that might be better than having to pay an additional $30.00 fee to the coffee shop. Another scenario where a Courtesy Pay program is beneficial: your car breaks down and you just need a couple of hundred dollars until payday. Just write a check and you are back on the road. Some consumers argue that they don't need legislation to determine when they can or should utilize these programs. A potential unintended consequence to such legislation is that financial institutions may simply close accounts for customers who play it close to the vest and occasionally overdraw their account, leaving a fair number of consumers without a banking option.
Many financial institutions find these programs very profitable and are sure to fight any legislation to restrict overdraft fees. But not all banks and credit unions will charge for each item, and some banks and credit unions are voluntarily reducing fees due to pressure from the Feds. Until legislation is passed, it pays to shop around. And if you do get hit with an unfair fee, call your bank to get a refund.
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