A proposed overdraft protection law titled “The Stop Overdraft Profiteering Act of 2018” has been sponsored by two U.S. senators who want to see an end to abusive bank behavior that is being felt most directly by those with overall lower incomes. The proposed overdraft protection law was co-sponsored by Ohio U.S. senator Sherrod Brown and New Jersey U.S. Senator Cory Booker.

According to a recent Louisiana Weekly article, the would-be overdraft protection law would seek to:

• prohibit overdraft fees on all debit card purchases and ATM withdrawal transactions
• limit the amount of overdraft fees banks can charge on checks and recurring payments to six each calendar year
• limit overdraft fee levels to an amount corresponding to the actual cost of covering the overdraft
• require banks to post transactions in proper chronological order to minimize non-sufficient-fund (NSF) and overdraft fees
• improve disclosures banks must make to patrons regarding overdraft coverage

This report passed on information from the Center for Responsible Lending (CRL), whose research indicated that among the largest of U.S. banking institutions, $11.45 billion was gleaned from patrons in overdraft fees in 2017. The methods by which this overdraft money was generated through what has become accepted practice as well as how it disproportionately affects those of limited income was part of a study titled Unfair Market: The State of High Cost Overdraft Practices in 2017.

The study’s author says that the lack of a comprehensive overdraft protection law in the United States has led to many abusive bank activities that have actually driven a lot of people out of using banks altogether. Examples of some of the activities that have maximized the profit of financial institutions have included:

• Allowing overdraft charges to meet or exceed five in a single day.
• Adding fees for each day the account is “in the red” or other methods of compounding overdraft charges
• Among a group of transactions, posting the ones with the largest amounts first rather than chronologically as they occur to ensure overdraft income fees.

An Independent Report

According to an independent report generated by the Consumer Financial Protection Bureau (CFPB), those most affected by these practices and the ones that would benefit the most from a comprehensive overdraft protection law are people who maintain checking account balances of around $350 or less as a daily end-of-business day average and a median credit score of 600. Some people that are beset by frequent overdraft fees have little to no credit score assessed and are considered “invisible”.

The Stop Overdraft Profiteering Act of 2018

According to the Louisiana Weekly, Senator Booker says there are countless U.S. citizens that are so stressed with the current cost of living as it compares with their incomes that even one unexpected expense can make the difference between financial solvency and ruin.

The overdraft protection law would limit the ways in which financial institutions take advantage of patrons, especially those with limited means, helping, in part, to address income inequality concerns.