ABA Banking Journal - December 2007 - (Page 48)
Compliance Clinic MAILBOX appears on page 50 Will overdraft take a bad bounce? To avoid stringent federal legislation, banks must reexamine their overdraft programs T By Nessa Eileen Feddis, ABA senior federal regulatory counsel, firstname.lastname@example.org COMPLIANCE CLINIC continued on page 52 48 DECEMBER 2007/ABA BANKING JOURNAL ILLUSTRATION BY LILLA ROGERS he evening news comes on and you see an engaging young soldier preparing for his fourth deployment to a war zone. He sits before the camera in uniform, with his wife and young children. He tells the viewer about his weekend in the countryside with his family before his next tour and a surprise from his bank upon his return. He has racked up over $1,000 in overdraft fees for about $350 in transactions, mostly small-dollar transactions for coffee, sandwiches, and similar items under $10. The news report explains that customers are in the best position to know their balance, and that the bank cannot know about outstanding items, which appears to have been the case here. It is also notes that overdrafts are intended to encourage customers to keep track of their spending and balance. Not reported is the fact that the bank likely waived most of the fees. Mostly what the public hears is: “A bank charged an American soldier heading back to a war zone over $1,000 in overdraft fees for $350 in transactions, mostly small-dollar items that the bank approved.” This is not a hypothetical example. In fact, it was an actual nightly news report recently broadcast in Washington, D.C. Yes, the Washington, D.C., where members of Congress reside and make laws about banks—and watch the nightly news. Overdrafts and reputation risk Overdraft fees are not new. Banks have traditionally paid overdrafts as an accommodation to reliable customers and charged a fee, a perfectly acceptable and explainable practice. Paying the overdraft means the customer avoids the consequences of a returned item. This means avoiding: fees charged by the payment recipient; the embarrassment and hassle associated with resolving the returned item; and even the potential of having negative information reported to a credit bureau. Moreover, the fees are avoidable and consumers have choices. But over $1,000 for $350 in transactions, mostly small-dollar transactions? This is the kind of news story that delivers burdensome and unnecessary regulations that all banks will suffer under. It has happened before. The Truth in Saving Act is a good illustration of this tendency. Congress considered and reconsidered the Truth in Savings Act over the course of several years. However, there was little compulsion or momentum to pass it,
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