Because it makes for big political talk, lawmakers are fueling the idea of reinstating price controls on financial institutions and the fees they charge for overdrafts and insufficient funds (NSF) fees. While the practices of some banks and credit unions to maximize their fee income through transaction booking strategies are reprehensible, having legislators set pricing is usually not good either. An article in Fortune states:
Though more than a dozen major banks have recently reduced or eliminated overdraft fees altogether, Democratic lawmakers continue to push for legislation that would curb the practice nationally.
On Tuesday, Rep. Carolyn Maloney (D-NY) and Senators Cory Booker (D-NJ) and Elizabeth Warren (D-MA) renewed their push to limit overdraft fees through federal legislation. The bills aim to eliminate insufficient funds (NSF) fees and limit the number of overdraft fees charged – and stipulate that those fees must be “reasonable”.
“Billions of dollars are made on the backs of low-income families struggling to survive,” Senator Booker said during a news briefing Tuesday. “We have to change that now. We have work to do.”
One of the unintended consequences of federal price control was highlighted:
… while some big banks have implemented [fee] Changes have critics who argue that capping overdraft fees could create more challenges for consumers than it solves. Overdraft protection provides bank customers with a viable source of short-term liquidity, and without it, some consumers may be forced to resort to alternatives like payday loans more frequently.
The Mercator Advisory Group considered this issue in a recent report: Overdraft Fees at an Inflection Point, Not a Cliff.
overview after Sarah grottoDirector, Debit and Alternative Products Advisory Service at Mercator Advisory Group