(The Center Square) – Democratic legislators are moving forward with a bill intended to curb excessive fees levied by financial institutions when a customer has insufficient funds to cover a transaction.
Proponents of the bill say the fees hurt people who are already facing financial hardship. Bankers say capping the fees would hamstring their ability to provide overdraft services and other offerings in the first place.
“Overdraft and non-sufficient funds fees can create significant financial strain for our constituents and small businesses, often leading to financial difficulties rather than providing meaningful solutions,” wrote the bill’s prime sponsor, Rep. Ben Sanchez, D-Abington. “These fees disproportionately impact on our low- and moderate-income constituents, often compounding financial difficulties, and creating a cycle of debt that is difficult to escape.”
The bill would require financial institutions to notify customers the same day via an approved communication method when they’ve overdrawn and by how much. It would cap overdraft fees to $15 and ensure that they can’t be charged more than three times in a single day. It also would bar banks from charging customers when a transaction has been declined.
Ceisler Media and Issue Advocacy, a communications firm, released a statement on behalf of financial institutions about the bill.
“A coalition of banks and credit unions is urging the state House of Representatives to oppose a fast-tracked measure (H.B. 1553) that could jeopardize overdraft protection and other vital financial security services while forcing consumers toward more dangerous financial alternatives and stripping them of choice in how they manage their money,” reads the statement.
In fact, the topic has been one of frequent discussion in the legislature the past few sessions and will have seen about a month between introduction and its potential final passage. House Bill 1553 passed the House Rules and Commerce committees respectively with party-line votes and on Thursday passed second consideration, clearing the way for passage to the Senate when brought up for another vote.
As to whether it would compromise the availability of services, the Consumer Financial Protection Bureau, or CFPB, has asserted that in most cases, profit from these kinds of fees far exceed the cost of providing the service, earning banks billions in revenue.
According to the coalition’s statement, capping the fees could lead to tough calls and increase costs for the customer. It suggested that free checking and other services could land on the chopping block.
“Arbitrary fee caps and same-day notification requirements may sound good on paper, but in practice they would create compliance and cost challenges that could force banks to scale back or eliminate overdraft programs altogether,” wrote John C. Dill, president, secretary and CEO of Marquette Savings Bank, in an op-ed for Go Erie.
Dill added that because national banks and federal credit unions won’t be subject to the state’s new caps, it would create unfair competition, though many such large institutions are already subject to caps.
The bill is part of a national call for reform surrounding junk fees, with President Joe Biden having taken particular aim at the issue in his 2023 State of the Union address. The CFPB led the charge in reducing these fees, which it said are incurred most frequently by people struggling with debt and poor credit.
The Trump administration has changed course, firing CFPB Director Rohit Chopra and appointing Russel Vought as acting director. Under his direction, the agency has deferred funding and initially halted operations, in line with other federal agencies that have been changed by the Trump administration’s cuts.
Last year, the CFPB closed loopholes that allowed major institutions with assets of $10 billion or more to treat overdraft fees as profitable loans. The change requires them to charge fees of no more than $5 or an amount that covers their costs and losses. If they choose to offer the fees as loans, they have to clearly disclose the terms to customers.
“For far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans’ deposit accounts,” said Chopra. “The CFPB is cracking down on these excessive junk fees and requiring big banks to come clean about the interest rate they’re charging on overdraft loans.”
