Responding to constituents who had complained about outrageous bank overcharges, I filed a bill earlier this year that would limit bank overcharges to one per day.
The banking establishment is constantly encouraging consumers to rely on debit cards rather than cash — see for example Visa’s advertising or this debit card marketing product. The marketing (not to mention the sheer convenience) is leading consumers to use cards for more and more transactions.
If, as we all do, we make a mistake and leave an account briefly uncovered, we might do half a dozen small transactions — coffee, breakfast, cleaning, etc. — before realizing that our account was overdrawn. The result could be overdraft charges adding up to several hundred dollars while we had only spent thirty or forty. People’s exposure to multiple overdraft charges are vastly greater now than they were thirty years ago when people would write relatively few checks on a monthly basis.
While banks have every right to prevent people from spending money they don’t have and to give them incentives to manage their money carefully, current overdraft charge practices are outrageous.
Big national banks like Bank of America are among the worst offenders, but they are probably beyond the reach of state regulation. It appears that under the doctrine of federal pre-emption, only Congress and federal regulators have authority over these banks.
Of course, we do have the power to regulate local banks which are state chartered, but some legislators are uncomfortable with idea of limiting overdraft charges at local banks while national banks continue to derive significant revenue from these charges. This, they argue would put the local banks at a “competitive disadvantage.” This argument strikes me as odd — the way some of the banks are operating is just wrong and to me it seems clear that we should stop the abuses as soon as possible in whatever segment of the industry we can reach.
In fact, there is some evidence that the national banks are backing off and the local banks have yet to follow suit. The practice changes by large national banks are in response to the threat of federal regulation. The Globe reported on these national developments recently.
I’m willing to wait a little longer to see if federal regulators are really going to move on the issue in a way that is meaningful and applicable to all banks. If not, I’m hopeful that the legislature will take action on some form of the bill that I filed. Hearings were held on the bill today. See Globe coverage here and Fox 25 coverage here.