WASHINGTON - Consumer advocates yesterday urged Congress to act on legislation to curb bank practices under which a cup of coffee bought with an overextended debit card can turn into a $40 expense.
Banks last year collected nearly $24 billion in overdraft fees, more than double the level of 2004, and much of that comes from those least able to pay - the poor, the young, minorities, and seniors - witnesses said at a Senate Banking, Housing and Urban Affairs Committee hearing on abusive overdraft policies.
In the midst of a recession, said Michael Calhoun of the Center for Responsible Lending, “abusive overdraft practices are making the dire financial situations faced by many families even worse.’’
Overdraft fees are charges when a customer writes a check, uses a debit card, or withdraws money from an ATM for an amount larger than the account holds. Nearly half the $24 billion total comes from debit card and ATM overdrafts.
People have a responsibility to spend within their means, said Senator Chris Dodd, the Conn. Democrat who chairs the committee and author of legislation that addresses overdraft charges. But current programs “encourage consumers to overdraw their accounts and then slam them with too-high fees.’’
Jean Ann Fox of the Consumer Federation of America said the median maximum overdraft fee for the largest banks is now $35. That means an uncovered $5 debit card purchase could easily turn into a $40 charge.