Main Street

Reining in the Banks

When Senator Chris Dodd (D-CT) decided recently to remain chairman of the Senate Banking Committee you could hear the financial industry lobbyists let out a collective groan.

It was Dodd who earlier this year championed credit card reform in Congress, helping to pass a bill, then signed by President Obama, to end the abusive and deceptive practices of the credit card companies.

Now Senator Dodd is gearing up to take on the banks on several fronts including overdraft fees, consumer financial protection and regulatory reform.

The Washington Post reported Monday that Sen. Dodd plans to introduce legislation to rein in bank overdraft fees.

A backlash is brewing on Capitol Hill against banks that charge large fees for overdrafts without asking or telling customers, the latest sign that the financial crisis is shifting the balance of power from banks toward borrowers.

Sen. Christopher J. Dodd (D-Conn.) plans to introduce legislation requiring banks to get permission from customers, rather than allowing overdrafts automatically. If customers decline and then try to overspend, the transaction would be rejected. A similar bill is pending in the House.

With the rapid expansion of bank debit card use in recent years, banks have found it highly profitable to automatically allow most debit transactions to process regardless of whether sufficient funds are available in the account, then charge the customer anywhere from $10 to upwards of $30 per overdraft.

In an announcement Dodd added:

Some banks maximize penalties by processing the largest purchases a customer makes first, draining accounts faster and creating the potential for multiple fees on multiple smaller purchases. Even on point of sale transactions, such as debit card or ATM transactions, banks do not notify the customer when they are withdrawing against insufficient funds. As a result, customers can unknowingly be charged hundreds of dollars in fees for only overdrawing their account on a few small purchases.

As evidence that the tide is beginning to turn against the unfettered power of the banks, even before Sen. Dodd’s legislation is introduced, major banks are scurrying to try to cover themselves.

Yesterday The New York Times reported

Bank of America and JPMorgan Chase, two of the nation’s biggest banks, announced plans on Tuesday to drastically overhaul their debit card programs by lowering or eliminating fees, changing the way they credit transactions and allowing customers to opt out of overdraft protection.

As part of a broader effort to reform America’s financial regulatory system and make it more effective, Dodd is also busy reviving his push for a new Consumer Financial Protection Agency. And the big business lobby doesn’t like it one bit.

The Chamber of Commerce, the business community’s umbrella group in Washington, recently organized a conference call coordinating some 200 representatives of groups who oppose the legislation. The call doesn’t mention any of the serious problems that led to the financial crisis or why consumer regulation is important. Instead, it follows a “death panel” approach to political discussion: Scare the hell out of everyone.

Dodd has been slamming industry opponents of the plan for months. At a Senate committee hearing earlier this session, referring to a story in the Washington Post, Dodd said:

“When I pick up the morning newspaper and I read the first headline that ‘Fault Lines Emerge and Industry Groups Blast Plan to Create Consumer Agency,’ what planet are you living on? The very people who created the damn mess are the ones now arguing that consumers ought not to be protected. They’re the people who paid this price. And the idea that you’re going to first attack the very clients and customers who depend on you every day is not the place to begin.”

Next Dodd sets his sights on more comprehensive, sweeping regulatory reform.

We can be sure the big boys on Wall Street won’t like that either.
Stay tuned.

Tags: banks, Chris Dodd, financial regulation