Overdraft fees can weigh on some consumers' budget process

11.01.09
By Lewis Green

Paying off overdraft fees can have a significant impact on more than one consumer's budget, which is why members of Congress are taking a closer look at them.

This week, the House Financial Services Committee held a hearing on the overdraft fees, which can exceed $30 in some cases when a consumer uses more money than is available on a debit card.

Some consumer advocates have raised the scenario of consumers being charged such amounts simply for buying a cup of coffee, also pointing out that the fees tend to apply for each transaction. With that in mind, a person who uses their debit card multiple times in a day without knowing they have an insufficient balance could end up on the hook for a couple hundred dollars in fees.

Defenders of the current system maintain that it's up to consumers to keep track of how much money they have in their account, and that the fees are a reasonable alternative to having a card declined at the cash register.

Still, Chairman Barney Frank, a Massachusetts Democrat, questioned whether financial institutions are actually providing the service they say they are, chiding the banks to not "do favors for people without asking them."

With that in mind, Frank and other Democratic members of Congress are backing legislation that would require financial institutions to let customers opt out of overdraft protection instead of automatically assessing the fees when funds come up short.

"Consumers do not apply for this form of credit, do not receive information on the cost to borrow bank funds via overdrafts, are not warned when a transaction is about to trigger an overdraft, and are not given the choice of whether to borrow the funds at an exorbitant price or simply cancel the transaction," said Jean Anne Fox of the Consumer Federation of America.

The legislation in question would also require "reasonable and proportional" overdraft fees and prohibit lenders from manipulating the order in which transactions clear to create more charges.

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Consumers may find less to worry about when it comes to overdraft fees.