U.S. Senator Cory Booker of New Jersey joins consumers in a growing fight against unfair overdraft fees by introducing a bill that bans banks from charging some overdraft fees.

Booker states that he hopes that the new bill, limiting banks ability to charge overdraft fees, will be able to disrupt a rampant practice that traps many consumers in a “vicious cycle of poverty.”

About Overdraft Fees

Though overdraft fees are advertised by banks as a feature, they can often be very dangerous. Banks offer “overdraft protection” programs that are advertised as giving customers as much flexibility as possible with their money. But that flexibility can come at the cost of unfair overdraft fees. 

In cases in which a consumer does not have overdraft protection, if they make a purchase with a debit card that exceeds the funds they have in their account, the purchase does not go through. If a person does have an overdraft protection program, then the purchase that exceeds the user’s funds can go through, but the bank charges the consumer a fee.

Consumers can quickly rack up overdraft fees if the purchases they make continue to go through even if their account is in the negative because often, banks do not notify consumers when an overdraft charge has been applied. So, unless a customer keeps a very close eye on their bank transactions, they can quickly rack up many overdraft fees.

Additionally, the average overdraft fee is $35, and as an overdraft fee is often charged on each transaction that goes over the customer’s fund limit, these fees can quickly pile up.

Because of these traps, the federal government prohibits banks from enrolling customers in an overdraft program without their consent, meaning that customers must “opt-in” to overdraft protection programs, not “opt out.”

However, consumers are finding that many banks are charging unfair overdraft fees, or finding ways to maximize the overdraft fees they can charge because overdraft fees are a major source of revenue for banks.

Standing Up to Unfair Overdraft Fees

The federal government does protect consumers in some way from overdraft fee abuses by banks, and more legislation is in the works to further defend consumers. Senator Booker’s proposed bill, called The Stop Overdraft Profiteering Act of 2018, would ban banks outright from charging overdraft fees on debit card transactions and ATM withdrawals.

Under the proposed bill, banks would be allowed to continue to charge overdraft fees on checks and recurring bill payments, though they would be limited to charging one fee per months, and no more than six fees in a year.

In an attempt to counter banks’ overwhelming practice of gaining huge profits off of overdraft fees, Booker’s bill would require that overdraft fees be “reasonable and proportional to the financial institution’s costs in providing the overdraft coverage.”

In addition to unfair overdraft fee legislation, consumers are standing up to unfair overdraft fees by filing overdraft fee lawsuits. Joining an overdraft fee lawsuit is a way for consumers to hold banks accountable for unfair and unlawful practices, and to regain compensation for the financial injury they suffered due to unfair overdraft fees.