The proposed Overdraft Protection Act of 2021 (H.R.4277) could introduce changes that impact how your financial institution discloses and charges overdraft fees on consumer accounts. Congress determined financial institutions often collect a high flat fee (typically around $35) each time they cover an overdraft, potentially several times a day due to increased usage of debit cards for electronic transactions, as well as charge additional fees for each day the account remained overdrawn.
The proposed Act would amend the Truth in Lending Act (TILA) with the purpose of “limiting abusive overdraft coverage fees and practices and providing meaningful disclosures and consumer choice in connection with overdraft coverage fees.”
The changes would require financial institutions to provide written or electronic notice describing the overdraft service and giving customers the opportunity to affirmatively assent to (opt-in) the service, thereby agreeing to be charged a fee when they overdraw their account with ATM and one-time debit card transactions.
The notice would also require disclosure of the bank’s policy regarding payments of overdrafts for other transactions like checks, ACH transactions, and automatic bill payments, as well as clearly note:
- a customer cannot be charged more than one overdraft coverage fee in any single calendar month and not more than six overdraft coverage fees in any single calendar year, per account
- overdrafts are paid at the bank’s discretion
- the bank may decline a transaction and not charge a fee
- acustomer’s overdraft service may be terminated for excessive use
While a consumer could revoke their consent at any time, financial institutions are not required to waive or reverse any overdraft fees charged prior to the revocation.
If the customer doesn’t optin to the overdraft service, then the financial institution would still be required to provide the same account terms, conditions, and features provided to opt-in customers.. For example, if the bank policy is to pay an overdraft check if the customer opted in to the service, then the bank must also pay the overdraft check even if the customer has not opted in to the overdraft service.
The Act was introduced in June 2021 and is currently with the House Committee on Financial Services. The CFPB recently announced it is conducting an in-depth review of the fees, too. That may be why some major financial institutions are reducing overdraft fees and adjusting overdraft policies this spring.
Real the bill’s full text here.