Article Photos

A bill co-sponsored by Ohio Sen. Sherrod Brown and recently introduced in the U.S. Senate would regulate the way banks charge penalties to customers who overdraw their accounts.

"We've heard complaints from thousands of constituents about being charged exhorbitant overdraft fees by their banks," Meghan Dubyak, press secretary for Brown's Washington, D.C., office, said on Wednesday.

"Ohioans have paid an estimated $900 million in bank overdraft fees last year," she said. "It's a huge problem."

Brown, D-Ohio, has joined Senate Banking Committee Chairman Chris Dodd, D-Conn., and others in sponsoring the Fairness and Accountability in Receiving (F.A.I.R.) Overdraft Coverage Act, designed to protect bank customers from excessive overdraft fees that, according to a release from Brown's office, may run upwards of $30 per charge.

But the banking industry says such regulation is not necessary.

"The Dodd bill is attempting to limit the number of overdrafts for which we can charge, to limit overdraft fees and to allow customers to opt in or opt out of overdraft protection programs," said Robert Palmer, president and CEO of the Community Bankers Association of Ohio.

Many bank customers are automatically enrolled in programs that allow the bank to cover overdrawn checking and ATM accounts. The bank also charges a fee each time the account is overdrawn.

"Most of our community banks' overdraft fees probably run in the mid-$20 range, which covers the cost and risk associated with handling an overdraft, whether it originates in an electronic ATM or checking transaction," Palmer said.

Without overdraft protection, the customer could end up paying the bank's overdraft fee as well as any fees charged for bounced checks by the business to whom the check or debit card was submitted, Palmer said.

"There's a possibility that without the overdraft protection, consumers could be paying $40, $50 or more," he said.

The Dodd bill would require all banks to obtain consent from customers before enrolling them in an overdraft protection program, allowing them to opt in or opt out of a program.

"But what's in the best interest of the consumer?" Palmer asked. "There's a perception that banks are trying to rack up fees for revenue, but I can assure you that's not the case.

"People don't have to take this overdraft service, but it's a service our community banks are proud to offer, and there's no cost associated with the program unless they overdraw their account," he said.

In addition to addressing overdraft protection programs, the Dodd bill would require that overdraft fees be proportional to the cost of processing the overdraft. It would also limit the number of overdraft fees a bank can charge to one per month and no more than six per year.

The bill would require banks to notify customers by e-mail, text or traditional mail when they overdraw an account, and it requires that customers be warned if an ATM or teller transaction will overdraw their account.

A similar bill has been introduced in the House of Representatives by Rep. Carolyn Maloney, D-N.Y.

Jim Falter, professor of finance and chairman of the Economic Management Department at Marietta College, said the main problem for the banking community is that most customers don't read the documents when they open an account.

"As a customer, you're buying services the bank offers, and all banks are competing for your business," he said, noting that local consumers have a choice of several banks or credit unions.

"Banks have been struggling already, and in the long run, this overdraft legislation could prove to be more of a declination for banking accounts," Falter added.

He said overdraft fees in a protection plan help cover the risk banks take on when they pay out for an overdrawn account. If fees are limited, banks would be less inclined to take that risk and could begin requiring background checks on customers before allowing them to open accounts.

"From the customer's view, the overdraft fees may seem exhorbitant," Falter said. "But from the banks' viewpoint, it not only helps prevent overdrawn accounts, it also covers some of the risk (in case the overdrafted amount is not paid back)."

He said that even larger banks like JP Morgan Chase are operating within a 4.3 percent profit margin, according to the institution's financial reports.

"I would pretty much concur with the banks on this issue," Falter said. "And this legislation could eat into their profits."

Marietta resident Joyce Ross believes everyone should be careful in maintaining their bank accounts.

"But I also think anything that helps protect consumers is good," she said of the proposed legislation.

Kay McKnight, of Marietta, had another view.

"People should watch their accounts and take care of themselves -- not allow the government to do things for them," she said.

Rep. Charlie Wilson, D-Ohio, said he's also working on consumer protection legislation in the House.

"Last week, the House Financial Services Committee began debating the creation of a Consumer Financial Protection Agency (CFPA), one important piece of the financial regulatory reform package the president sent to Congress earlier this year," Wilson said in an e-mail Wednesday afternoon.

"The agency will help protect American consumers and restore common sense rules to help keep a crisis like the one we faced last year from happening again," he said. "I have a pending amendment that would ensure that the CFPA board is appointed in a bipartisan manner, so that consumer protections are not subjected to political winds."

The amendment was later passed in committee, according to a phone call from Wilson's office Wednesday evening.

"Markup and final votes in the Financial Services Committee should occur this week," Wilson added. "Hopefully, the full House of Representatives will consider this bill in the next few weeks.

"I've often said it's hard to play a good, fair game without a referee on the field. The CFPA will help put the appropriate referee in place - and make sure consumers are protected. Our work in the Financial Services Committee is a big step toward more oversight, transparency and consumer protection in our financial system."