Overdraft Fee Debate Hot in DC Posted by AVCU on 1:03 PM

Earlier this week Bank of America, Chase and Wells Fargo said they are reduc­ing overdraft fees. House Financial Services Chair Barney Frank (D-Mass.) says he supports the moves by the nation’s 3 biggest banks but will still push legislation requiring changes in overdraft policies at banks. The Federal Reserve is also considering strict limits on overdraft fees that could come later this year. The three banks, which offer overdraft protection on all checking accounts, will allow consumers to opt out of the service, eliminating potential overdraft fees. Chase and Wells Fargo will cancel fees for accounts over­drawn by $5 or less. BofA will end fees on accounts that are short $10 or less.

“These are positive changes, but the system has gotten completely out of whack,” says Senate Banking Chair Chris Dodd (D-Conn.). He introduced legislation to crack down on overdraft fees last week. The banking industry earned $39.5 billion from service charges on deposits last year, up from $1.97 billion in 2006, according to data from the FDIC. Fees for everything from ATM usage to balance transfers accounted for 25% of the indus­try’s total revenue and cutting back on such fees poses a problem. Critics says levying heavy fees to consumers is unfair, since the U.S. gov­ernment recently allocated more than $700 billion to support troubled American lenders. Consumer advocates have paraded examples of consumers who have paid $40 for a cup of coffee because they unwittingly ran a negative balance in their checking account.