Bank overdraft fees must be reformed

Overdrawn transactions generate inexcusable loads of cash for banks. According to USA Today, these fees are the single largest driver of consumer fee income. Banks this year are expected to reap a record $38.5 billion from overdraft and insufficient-funds fees – nearly twice the $20.5 billion they stand to collect from credit card penalties.

Legislators are finally recognizing the immense burden these predatory banking practices inflict on Americans. Senate Banking Committee Chairman Christopher Dodd is introducing legislation aimed at limiting bank overdraft fees.

“American consumers are being hit with hundreds of dollars in penalties for overdrawing on their account by just a few dollars,” Dodd said in a statement. “Banks should not be trying to bolster their profits at the expense of their customers.”

This legislation could not come soon enough. For decades, banking institutions have used overdraft protection and other such fees to strong-arm hardworking people. Bank of America, for example, charges customers a $35 fine for overdrafts of $10 or more.

There are some who don’t agree, especially those benefiting from these fees. Edward Yingling, president and chief executive officer of the American Bankers Association in Washington, D.C., said in a statement that people should be responsible, not banks.

“It is likely to encourage irresponsible personal financial management,” he said. “It may also make it cost-prohibitive for banks – especially community banks – to offer the service if customers can regularly overdraw their accounts without incurring any penalty.”

It would not cost much for banks to let customers spend a little more than they have, and then retrieve the overdrawn amount when customers get more money, without charging a fee.

Some banks are taking steps in the right direction, like Capital One, which announced on its Web site that it will limit overdraft fees to four per day and not charge when customers overdraw $5 or less.

Overdraft fee could also scale to reflect the amount spent, so customers who overdraw a little won’t be slapped with an excessive fee.

Banks could simply deactivate debit cards when customers run out of money or notify them, rather than letting them accrue excessive fees.

These proposed regulations should be the first step in stemming this rampant fiscal tyranny. These banks are fleecing the hardworking taxpayers to line their own pockets. Preventing overdrafts would be no great inconvenience, but banks choose greed over customer service.

Phillip Simmer is a junior majoring in creative writing.