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Worthwhile Garden State Initiative

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This is a really good idea:

Sen. Cory Booker is taking aim at bank overdraft fees, which users incur if they spend or withdraw more than their available checking account balance. These fees have become a crucial source of revenue for financial institutions and have long targeted low-income customers who struggle the most to stay out of debt.

Booker’s newly proposed legislation — informed by a survey of several large banks that his office conducted last year — would bar financial institutions from charging overdraft fees on debit card transactions and ATM withdrawals. The bill would also restrict the frequency of such charges on payments made by check.

“It’s been well-documented for many years that banks have used a variety of methods to push people into incurring overdraft fees to boost their income,” said Lauren Saunders, an associate director at the National Consumer Law Center, who helped work on the legislation. “They do a lot to push huge costs on the people least able to bear them.”

[…]

As banks have become increasingly reliant on these fees, they’ve also resorted to more tactics that take advantage of customers who are making these payments. As Booker’s office found last year, some banks even reorder the sequence in which they process a person’s transactions — so the most expensive transaction is processed first.

As a result, if that payment overdraws the account, every other purchase after that could also potentially trigger an overdraft fee. Theoretically, this could mean that one customer is hit with multiple $35 charges in one day — a substantial cost — especially if maintaining a positive bank balance is already a challenge.

“It’s been such a cash cow for banks. They’re deeply committed to their overdraft revenue,” Borne said. In the late 2000s, this activity attracted the attention of the Federal Reserve, which concluded that banks were not giving consumers enough information about how they were levying these penalties. At the time, the agency established rules that would require banks to get consumer opt-in, or consent, for participating in any overdraft programs.

Borne said this effort temporarily hurt banks’ revenue, but institutions quickly found a way around it. She noted that many banks’ marketing explicitly touts free checking accounts and obscures how such fees and opt-in programs work. A 2014 Pew study found that more than 50 percent of consumers had no clue they had opted in to an overdraft program. Pew has also found that 70 percent of people who have overdrafted in the course of a year did not know they could get their debit cards declined for free.

Bank regulation needs to be on the agenda of the next Democratic government and this should be part of it.

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