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THE OVERDRAFT PROTECTION ACT OF 2009 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

OCTOBER 30, 2009 

Printed for the use of the Committee on Financial Services 

Serial No. 111–89 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

October 30, 2009 ............................................................................................... 1 

Appendix: 

October 30, 2009 ............................................................................................... 53 

WITNESSES 

FRIDAY, OCTOBER 30, 2009 

Blaine, Jim, President, North Carolina State Employees Credit Union ............. 14 

Bloom, Ellen, Director, Federal Policy and Washington Office, Consumers 

Union ..................................................................................................................... 17 

Colley, Mark A., President and Chief Executive Officer, Tulsa Postal & Community Federal Credit Union, on behalf of the National Association of 

Federal Credit Unions (NAFCU) ........................................................................ 19 

Dollar, Dennis, Principal Partner, Dollar Associates, LLC .................................. 16 

Feddis, Nessa, Vice President and Senior Counsel, Center for Regulatory 

Compliance, American Bankers Association (ABA) .......................................... 7 

Fox, Jean Ann, Director, Financial Services, Consumer Federation of America 

(CFA) ..................................................................................................................... 6 

Halperin, Eric, Director, Washington Office, Center for Responsible Lending .. 9 

Hunt, Richard, President, Consumer Bankers Association (CBA) ...................... 21 

Ireland, Oliver I., Partner, Morrison & Foerster LLP .......................................... 13 

Menzies, R. Michael S., Sr., President and Chief Executive Officer, Easton 

Bank and Trust Company, on behalf of the Independent Community Bankers of America (ICBA) .......................................................................................... 22 

Staatz, Rodney, President and Chief Executive Officer, State Employees Credit Union of Maryland (SECU), on behalf of the Credit Union National 

Association (CUNA) ............................................................................................. 11 

APPENDIX 

Prepared statements: 

Blaine, Jim ........................................................................................................ 54 

Bloom, Ellen ...................................................................................................... 58 

Colley, Mark A. ................................................................................................. 85 

Dollar, Dennis ................................................................................................... 99 

Feddis, Nessa .................................................................................................... 105 

Fox, Jean Ann ................................................................................................... 114 

Halperin, Eric ................................................................................................... 136 

Hunt, Richard ................................................................................................... 150 

Ireland, Oliver I. ............................................................................................... 158 

Menzies, R. Michael S., Sr. .............................................................................. 167 

Staatz, Rodney .................................................................................................. 176 

(1) 

THE OVERDRAFT PROTECTION ACT OF 2009 

Friday, October 30, 2009 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 9:41 a.m., in room 

2128, Rayburn House Office Building, Hon. Barney Frank [chairman of the committee] presiding. 

Members present: Representatives Frank, Maloney, Green, 

Cleaver, Ellison, Perlmutter, Himes; Bachus, Royce, and Posey. 

The CHAIRMAN. There is a very plausible reason that I am late: 

I am getting forgetful. And I am sorry. I got engrossed in something else. I apologize. 

You honor us by coming here on a Friday. I feel badly and I am 

sorry. 

We will begin with our opening statements. We will have 10 minutes on each side. And I recognize the gentlewoman from New 

York, Mrs. Maloney, the main author of this legislation, and so 

many other consumer protections, for 5 minutes. 

Mrs. MALONEY. Thank you so much, Mr. Chairman, for your support and leadership on this important issue. And thank you for 

having this hearing on H.R. 3904, the Overdraft Protection Act of 

2009. 

The overdraft problem is significant and getting worse because 

the quantity of debit card transactions now exceeds the quantity of 

credit card transactions. Just yesterday, a headline in the American Banker Newspaper read, ‘‘Dependence on debit is the new 

norm.’’ 

The Center for Responsible Lending has found that overdraft fees 

have increased 35 percent in the last 2 years, and they estimate 

that 27 million Americans overdrew their checking account more 

than 5 times in a 12-month period. 

From start to finish, the consumer is too often kept in the dark, 

not allowed to choose how he or she spends their own money. This 

bill brings sunshine and permission into the process, restricting deceptive practices and empowering consumers to manage their own 

lives and their own financial accounts. 

Let me briefly explain the overdraft cycle. As a consumer opens 

an account, according to a study by the FDIC, most banks, 75 percent of banks, automatically enroll them in an automated overdraft 

program which charges a fee from $10 to $38 for each overdraft 

and, sometimes, another fee if an account stays at a negative balance, even though the consumer does not even know it is in a negative balance. 

2 

So what this bill does is give consumers more tools to better 

make their own decisions about how to manage their own money. 

Then, consumers begin to use their debit card just as they have advertised: for groceries, for gas, for a cup of coffee and movie tickets, 

to run a Sunday’s worth of errands, and many people use their 

debit card at a point of sale half a dozen times or more. And because they were enrolled automatically in overdraft protection and 

are using ATMs or point-of-sale terminals, they don’t or cannot tell 

if a transaction is about to drive them into a negative balance and 

they incur a fee. 

Consumers often do not know that they have even incurred overdraft fees until they get the bills, sometimes as much as $300 to 

$600 for overdraft fees for one weekend. 

What the consumer does not know, unless they keep very strict 

track of their balance after each and every transaction, is that they 

could have racked up half a dozen or more overdraft fees in just 

a single day. So that $5 cup of coffee, an extravagance in its own 

right, then turns into a $35 cup of coffee because of the overdraft 

fee. 

What is more, the consumer does not find out about the fee that 

was automatically charged until later, because the overwhelming 

majority of banks, 81 percent according to the FDIC, will allow an 

overdraft to occur at an ATM or point of sale but only notify the 

consumer after the transaction has been completed and the overdraft fee has been charged. 

Finally, the overdraft problem culminates when the transactions 

are posted to accounts back at the bank. You might think that the 

transactions would be posted in chronological order, but you would 

be wrong. They are usually posted by size, from the largest amount 

spent to the smallest, driving people into overdraft fees quicker, 

which means that the transaction fee has the effect of driving the 

account into a negative balance faster, and each smaller transaction that occurs while the account is in a negative balance incurs 

a new, separate overdraft fee. 

The FDIC study reports that 53.7 percent of large banks process 

overdraft fees in large-to-small fashion, therefore driving up the 

cost to the individual. 

The bill that Chairman Frank and Chairwoman Waters and I 

have introduced meets the overdraft problem head on from start to 

finish. First, this is a bipartisan effort; Walter Jones joined us in 

the introduction of this bill—it brings automated overdraft plans 

under the Truth in Lending Act, requiring financial institutions to 

obtain permission of consumers before enrolling them in the overdraft program. 

It requires that ATMs notify the consumer if the cash withdrawal would incur an overdraft fee, and allows the consumer to 

reject the withdrawal before the fee is incurred, thereby giving the 

consumer more control over their own finances. It limits overdrafts 

at the source, the financial institution, to no more than 1 per 

month or 6 per year. It prohibits the manipulation— 

The CHAIRMAN. The gentlewoman is recognized for an additional 

minute. 

Mrs. MALONEY. Oh, my goodness. 

3 

I feel strongly about this. Let me just say that it requires that overdraft fees be proportional to actual harm, so that a $5 cup of 

coffee isn’t charged what amounts to a 700 percent interest rate in 

the form of a $35 fee. 

And I want to applaud the efforts of some of the large banks that 

have worked to address this problem by voluntarily limiting the 

fees. But we feel that overdraft protections must be extended to all 

customers of all financial institutions. Even some of the banks 

which have dialed back overdrafts still permit up to 4 overdrafts 

per day. 

As the FDIC study has shown, the problem is so wide and so 

deep, encompassing the majority of banks and affecting tens of millions of consumers, Congress must address this problem across-theboard systemically. 

The bill is the largest—my latest version of my legislation on this 

issue; I have introduced it in several other Congresses. And I thank 

the chairman for sponsoring it and for having this hearing. 

I also want to welcome all of the witnesses. I believe this is the 

largest panel in the history of the Banking Committee—the Financial Services Committee, showing the deep concern and attention, 

so I thank you all for being here. 

The CHAIRMAN. I thank the gentlewoman. 

I appreciate—I thought it was best to do it this way, there being 

a small number of members. I will say we had originally contemplated our being in session today, but I don’t mind that because 

I think we will be able to focus with the small amount of members. 

But if we have unanimous consent—I have checked with the 

ranking member—each member will have 10 minutes rather than 

5 to question, to accommodate. There aren’t that many people here, 

so that way we will be able to accommodate that; and we will have 

a 10-minute question period—I am afraid we can’t get used to that, 

given the size of this committee—and we might even be able to do 

a second round. So I do want to take up for that. 

And the gentleman from Alabama is now recognized for 10 minutes. 

Mr. BACHUS. Thank you, Mr. Chairman. 

I will just touch on some brief thoughts. I am interested in hearing from the panel, because this is obviously an issue that I think 

all of us are interested in. 

As far as an alternative, if you don’t have overdraft fees, what 

do you have? And what I have is a line of credit, and I think that 

is a far wiser and sounder money management tool. And I am not 

sure; I think one approach would be if the banks—and I think with 

the financial literacy, if we said to people there is a better alternative than overdraft fees. 

I would be interested in you—maybe either in the questions or 

addressing why aren’t there more lines of credit or are people not 

aware of that. 

I will say, one other alternative to overdraft fees is not a good 

alternative, and that is issuing a worthless check charge, which is 

a criminal charge. When I started practicing law in the mid-1970’s, 

you had to take a certain number of appointed cases, and about a 

third of the docket in criminal court were people issuing worthless 

checks. You would go to a municipal court and you would find that 

4 

was sort of the predominant charge. There were just people even 

in small towns who for one reason or another wrote a bad check. 

And I don’t think any of us want to return to that. 

The fees, I think all bank fees, we all know that over the past 

10 years those fees have—all fees have either doubled or tripled. 

I think that is pretty much a given. And maybe that is not true. 

I would like to hear if I am wrong about that. And the other thing about the overdraft fees is they are all $35. 

I think that seems to be the general charge. And every time the 

fee at every bank is $35, you wonder why that is. And maybe that 

is close to the cost. 

The ATM or point—either a debit card when you go in a grocery 

store, it is my understanding from some of the banks that you have 

a problem at that point telling people that they are overdrafting. 

I am certainly interested in that. Obviously, if you could tell them, 

I think it would be a good thing. 

Now, at the ATM machines it is also my impression that you can 

tell them there. And I really can’t see anything wrong with a requirement that you tell them that they are overdrafting when they 

use their ATM card. But I think some of the smaller banks may 

have more difficulty, or the credit unions, with this because of technology. 

And the last thing I would ask is, how do we address this? The 

banks that are making money today are the old investment banks. 

They are making money trading, they are making money speculating, which can be a dangerous thing. 

The commercial banks are losing money. They may have a good 

quarter, but they are apparently not making a lot of money on 

lending even though the cost of money from the Fed is awfully 

cheap. 

But if they are losing money, where do they make that up? And 

that is—so the timing of all this is a challenge, particularly when 

so many of our banks are losing money. Yes, they may be charging 

$35, and we may think that is too much, but we don’t want to put 

all our banks out of business. 

So, Mr. Chairman, I do appreciate you having this hearing, and 

I look forward to hearing from the witnesses. And I personally am 

more in just a listening mode and would be interested in your comments. 

But I want to go right back to what I started with, and that is 

that I still remember in the late 1970’s when I would be representing somebody on an appointed case, and they would have all 

these bad checks and a lot of times they would actually be in jail. 

And I don’t think you see any of that, I don’t think you see that 

like you used to. Now, I could be wrong. I would be interested in 

if some of the consumer groups, particularly whether you have sort 

of taken a look at that, and whether one unintended consequence 

of not having some safety net would result in people going to jail. 

And particularly college kids who can’t seem to—many of them 

can’t seem to manage their money; you certainly don’t want a 

criminal record, and issuing a worthless check is a criminal record, 

which actually in many cases would disqualify them from jobs. So 

$35 fees are one thing; a charge that disqualifies you from an occupation is a much more serious alternative. 

5 

So, with that, thank you, Mr. Chairman. 

I thank the witnesses. 

The CHAIRMAN. I just want to announce there had been some discussion of scheduling a markup of this bill on Tuesday. That will 

not happen now because we have the New York, Virginia, and New 

Jersey elections on Tuesday, and those are all within easy commuting distance of here, so a number of the members from the 

committee will be working that day. And the gentlewoman from 

New York, in particular, is very important obviously to this bill. 

So we will not be marking this bill up next week, which means 

we won’t be marking it up, people for their own calendars should 

know, for at least a couple of weeks, because the week after it 

being Veterans Day coming in the middle of the week, we are very 

unlikely to be in. 

So we will proceed. 

I will just recognize myself for a brief comment, which is, I would 

urge my friends in the Banking Committee—we wouldn’t, I believe, 

be in a situation where we are talking about legislation if you 

would have had an opt-in regime from the beginning. I guess I 

would make it a general rule that I have learned in politics: Don’t 

do people favors without asking them. 

Early on in my career as a Member of Congress, I received a 

phone call from a woman who said her daughter was about to be 

married—this is a true story—and her husband-to-be was in the 

military, and he was about to be shipped out, and could I get that 

date postponed so that the wedding could take place before he was 

shipped out. 

And being new at this, I tried to do that, whereupon I got a 

phone call from the groom-to-be that said, ‘‘Mind your own business; don’t do me a favor without asking me.’’ I would urge that 

on you. 

I have to say, I am skeptical. People say, oh, we have to give 

them this overdraft without asking them. It is in their interest. 

That is another I have had as a Member of Congress. When people 

come to me to argue for something that benefits them, which is entirely legitimate, that is what people ought to be doing, we need 

to know how what we do affects people. 

But when we go to the next step and say, this is not only good 

for me, this is good for the people who will be paying me to do it, 

my answer is now invariably, when they come and tell me that, I 

will believe that. But unless you have a signed proxy form in which 

you are empowered to tell me that it would be a good thing for 

them to pay you, I am skeptical. 

So I really urge you to do this a lot. And part of it is it is human 

nature. It is not simply a question of how much money it is. It is 

indignation. It is the sense that people’s integrity and autonomy 

has been impaired when you do this to them and then tell them 

you did it for them. 

So I would just urge you on all of this, have an opt-in, have it 

in clear language. 

I continue to get two types of mail from banks: solicitations to 

do things that will bring them money in very large type; and explanations of conditions that apply to things I do in very much smaller 

type. It is a very old joke and a very bad one. 

6 

So you can save yourselves a lot of problems by that, and I would 

encourage you to do that going forward. 

With that, we will begin with the witnesses. And, as I said, we 

will have 10 minutes to question. I do have one preliminary question for Mr. Menzies, whom we welcome back, having been here 

yesterday. 

Who is running the bank, Mr. Menzies? We have you down here 

all week. 

Mr. MENZIES. Thank you, Mr. Chairman. We have a very strong 

little community bank. 

The CHAIRMAN. We appreciate you. You have been a good witness, and we are glad to have you freed up for that. 

Let’s begin with Ms. Fox. 

STATEMENT OF JEAN ANN FOX, DIRECTOR OF FINANCIAL 

SERVICES, CONSUMER FEDERATION OF AMERICA (CFA) 

Ms. FOX. Thank you, Mr. Chairman, Ranking Member Bachus, 

and members of the committee. I am Jean Ann Fox, director of financial services for the Consumer Federation of America. I am testifying today on behalf of the national consumer groups listed on 

my testimony. We are here to express enthusiastic support for Representative Maloney’s H.R. 3904, the Overdraft Protection Act of 

2009. 

Banks extend credit when they cover an overdraft and then 

charge a fee. Instead of denying a debit purchase, banks are permitting it to go through and then are charging about $35 for each 

occurrence. Banks pay overdrafts on paper checks, on point-of-sale 

debit purchases, ATM withdrawals, automated clearinghouse 

transactions to pay bills. And due to Federal Reserve action on 

this, consumers are not protected under the Truth in Lending Act. 

These are very small loans. The FDIC study says that the typical 

debit card purchase is just $20, so consumers are paying $35 to 

borrow $20 for just a few days. The largest of overdrafts is just $78 

for an ACH payment. 

So these are very small loans, and they are very expensive. In 

our most recent look at the largest banks’ overdraft fees practices, 

the top fee was $39 for the initial overdraft, the lowest was $34. 

The typical fee is $35. Ten of the largest banks charge a second fee 

if consumers don’t pay the overdraft back in as little as 3 days. 

The sustained overdraft fees are either one-time fees—for example, Bank of America started this June charging a second $35 fee 

if the overdraft was not repaid in 5 business days. Some banks 

charge $8 a day after a few days if the overdraft has not been repaid. This makes a single mistake, a single overdraft, turn into a 

financial disaster for consumers. 

These are very short-term loans. The bank takes payment out of 

the next deposit into your bank account to repay your loan if you 

haven’t come down with cash to pay them off right away. And, as 

Representative Maloney noted, consumers do not affirmatively sign 

up for this program. This is the only form of involuntary credit that 

we know of that is so widespread. 

And, of course, the largest banks process payments large to 

small, or reserve the right to do that, which means that if they 

don’t process payments out of your account as they come in, they 

7 

wait a couple of days to have lots of little debits and one pretty 

good-sized check. You can wipe out the balance very quickly and 

then charge people a fee for each one of the smaller payments that 

overdraw. 

This is not what consumers want to have happen. 

CFA commissioned a poll by ORCI this past July and asked what 

consumers thought banks should be doing: 71 percent support that 

banks should get permission before they pay an overdraft; 85 percent say that banks should be required to disclose on the ATM 

screen that a withdrawal will overdraw the account and trigger a 

fee; 70 percent say that banks should be required to pay checks in 

the order they receive them; and 53 percent strongly support that 

position. 

Your bill meets what consumers want to have happen. 

And the folks who are harmed by this are the folks who can least 

afford to pay the highest cost for overdraft coverage of any bank 

products. These are low-income consumers, these are young people, 

these are folks who are renters and likely to be single. 

In the polls that we did this summer, twice as many people who 

said they paid for an overdraft were African American, compared 

to the sample as a whole. 

So this impacts a fraction of bank customers. According to the FDIC study, about a fourth of Americans are paying this $24-billion-a-year tab for credit they did not request, did not know they 

had, or were unable to make informed decisions. 

Your bill adds protections that consumers need. 

In addition to consent, which should be a given—that consumers 

should give consent to be able to borrow from their banks, the 

other protections help keep overdrafts from becoming a debt trap 

for unwary consumers—banks would have to comply with Truth in 

Lending and treat this fee as a finance charge. 

There would be a ban on manipulating the order of processing 

payments. Banks have a lot of different tactics that result in more 

fees, and they are instructed to use those in order to maximize income. 

Your bill provides a cap on fees so that a bank can’t charge more 

than once a month if they have covered an overdraft, with a limit 

of 6 per year. This implements the safety and soundness guidelines 

that the FDIC provided a few years ago when banks were making 

a similar type of very short-term, very high-cost credit to consumers. 

Thank you, Mr. Chairman. 

[The prepared statement of Ms. Fox can be found on page 114 

of the appendix.] 

The CHAIRMAN. Our next witness is Nessa Feddis, who is vice 

president and senior counsel of the Center for Regulatory Compliance, American Bankers Association. 

STATEMENT OF NESSA FEDDIS, VICE PRESIDENT AND SENIOR 

COUNSEL, CENTER FOR REGULATORY COMPLIANCE, AMERICAN BANKERS ASSOCIATION (ABA) 

Ms. FEDDIS. Thank you, Chairman Frank, Ranking Member 

Bachus. My name is Nessa Feddis, and I appreciate the opportunity to testify on behalf of the American Bankers Association. 

8 

Americans enjoy the most affordable, accessible banking system 

of any country in the world. They have access to full service checking accounts at little or no cost. 

Now, in the best of all worlds, people would only make payments 

when they have money in their accounts to cover the transaction. 

But this isn’t a perfect world. When inadvertent overdrafts occur, 

most consumers value institutions paying their overdrafts, and 

they have come to expect it. Indeed, 96 percent of consumers who 

had an overdraft paid were glad that it had been paid. 

Similar studies by the Federal Reserve found most participants 

expect and value coverage. Payment rejection means embarrassment, inconvenience, merchant fees, and other adverse consequences. Rejection means payment recipients refusing their 

checks or electronic payments in the future, or having negative information put into a credit report. 

Customers also often want their debit card transactions to go 

through, whether it is for groceries already selected and bagged, a 

meal already eaten, emergency purchases, or a bill they want to 

pay through a debit card. 

Overdraft fees are easy to avoid, and most consumers avoid 

them. In fact, in a survey of 1,000 bank customers, 82 percent said 

they hadn’t paid one in the past 12 months. 

For customers who find it challenging to manage their accounts 

and avoid overdraft, there are many options available, including 

keeping a little extra money in the account or linking their account 

to a savings account or a line of credit. And, as the FDIC found, 

most institutions permit customers to decline overdraft services. 

ABA is very concerned about the potential unintended consequences of H.R. 3904. It presents significant challenges for all 

banks and will mean a complete redesign of checking account features and pricing. The result would be more hassle and cost for 

customers who find payments returned or rejected and will have 

significant unintended consequences on the availability of services 

and cost to all checking account customers. 

For example, the bill limits overdraft fees to those that are reasonable and proportional to the cost of processing the transaction. 

Such an approach misses critical elements of the pricing. 

First, the cost of pricing ignores the deterrent value of overdrafts. Just like a parking or speeding ticket, overdrafts are meant 

to be a deterrent. Like any penalty, they are designed to get the 

person’s attention in a way that a nominal fee does not. 

Second, the cost of processing does not reflect the risk of loss nor 

the lost income earned from balances which help pay for the cost 

of providing the account. This lost income makes it more expensive 

to offer accounts and means that those who manage their accounts 

well absorb those costs in the form of higher fees. 

Another provision which limits monthly and yearly overdrafts 

limits consumer choice by prohibiting overdrafts they want paid 

from being paid. Banks would reject overdraft transactions once 

the maximum fee has been met or just reject all. This means consumers suffer the consequences discussed earlier: the hassle, inconvenience, cost and embarrassment of rejected items, the very reasons that consumer testing has found people value and want this 

service. Such artificial limitations would lead to significant uninVerDate Nov 24 2008 16:53 Apr 22, 2010 Jkt 055815 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\55815.TXT TERRIE
9 

tended consequences. As history has shown, government price fixing does not work and ends up hurting the people it is intended 

to help. 

H.R. 3904 also appears to require an APR calculation. As explained in greater detail in my written testimony and as government testing supports, calculating an APR for overdrafts would 

mislead and confuse consumers. The shorter the repayment period, 

the greater the APR will appear in instances involving a fixed fee. 

This means that the sooner the consumer repays, the greater the 

APR—a difficult concept to explain as it appears that paying earlier increases the cost and it is better to delay repayment; or the 

greater the overdraft, the less costly it is because, of course, the 

APR is going to be lower. 

In summary, ABA believes that overdraft protection services provide a valuable service. The bill will mean a complete redesign of 

checking accounts, more hassle and costs for customers who find 

payments rejected, less access to checking account services for 

some, and higher prices. Because of these and other unintended 

consequences, ABA opposes the bill in its current form. 

We are ready to work with this committee to address ways to improve the bill. Thank you. 

[The prepared statement of Ms. Feddis can be found on page 105 

of the appendix.] 

The CHAIRMAN. Next, Mr. Eric Halperin, who is the director of 

the Washington office of the Center for Responsible Lending. 

STATEMENT OF ERIC HALPERIN, DIRECTOR, WASHINGTON 

OFFICE, CENTER FOR RESPONSIBLE LENDING 

Mr. HALPERIN. Good morning, Chairman Frank, Ranking Member Bachus, and other members of the committee. Thank you for 

inviting me to testify on H.R. 3904, the Overdraft Protection Act 

of 2009. The Center for Responsible Lending enthusiastically supports this bill as it will provide important protections for consumers from abusive overdraft fees. 

The Center for Responsible Lending is a nonprofit research and 

policy organization dedicated to protecting family wealth. We also 

are affiliated with Self-Help, which is a nonprofit loan fund and a 

credit union. Self-Help does not charge overdraft fees and routinely 

denies debit card and ATM transactions that would overdraw the 

account for no fee. 

In the midst of a recession, abusive overdraft practices are making the dire financial situation of families even worse. Banks are 

making loans that consumers never asked for at astronomical 

prices. In 2008, consumers paid nearly $24 billion in overdraft fees. 

This represented a 35 percent increase over the number of fees 

paid in 2006 and is now more than consumers spend on many basic 

household staples. 

The effect of overdraft fees is widespread. An estimated 50 million people will overdraft their account at least once each year, and 

27 million people will overdraw their account at least 5 times each 

year. 

To understand the growth of overdraft fees over the last 5 years, 

it is important to understand the growth of debit card transactions 

which were key to this increase. Debit card transactions now acVerDate Nov 24 2008 16:53 Apr 22, 2010 Jkt 055815 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\55815.TXT TERRIE
10 

count for nearly 50 percent of all transactions that trigger an overdraft, and they are growing every year as debit card transactions 

become more common. 

Checks, on the other hand, account for only about a quarter of 

all transactions that lead to an overdraft. And the number of 

checks written each year is shrinking, especially among the younger demographic. 

Debit card overdrafts are particularly indefensible because financial institutions could deny those transactions without charging 

their customers a fee. And this is, in fact, what most financial institutions did just 5 years ago. In 2004, 80 percent of financial institutions routinely denied transactions that would overdraw the 

account that originated through a debit card. The FDIC found that 

in 2008, 81 percent of institutions now routinely approve those 

transactions. 

Debit card overdrafts are also more likely to be small-dollar 

transactions. On the average, a debit card overdraft results in a 

$17 loan, the average fee paid is $34, and that loan is paid back 

in 3 days. You pay your bank $34 to loan you $17 for 3 days. It 

is an expensive and unsustainable way to get credit. 

When the debit card first came onto the market, we told consumers that this was an excellent tool to manage your finances; it 

is a way to make your purchases without going into debt on a credit card. But because of the widespread prevalence of debit card 

overdraft programs, we have turned that debit card into the most 

expensive credit card on the market although it lacks the basic consumer protections that we have for a credit card. 

Debit card transactions drive overdraft fees in every demographic 

including those consumers 55 and older. It is the leading cause of 

overdrafts for those consumers. People 55 and over, on all types of 

transactions, paid $6.2 billion in overdraft fees. But, most importantly, $1.4 billion in overdraft fees is paid by seniors who are 

heavily dependent on Social Security for their income. People who 

worked hard their entire lives and paid into the system are seeing 

$1.5 billion taken out of their Social Security check by their financial institutions. 

Overdraft programs are structured to encourage rather than discourage use. Their high fees and short repayment time often trigger a debt cycle for people who overdraft repeatedly, where overdraft fees simply beget more overdraft fees, because once the fees 

and the loan amounts are taken out of their check, they are left 

with less money to make it to the next payday. 

H.R. 3904 contains important protections that go beyond the 

baseline of consent that you must consent to participate in the 

credit program. Reasonable and proportional fees will ensure that 

we will not have any more $35 fees for $5 overdrafts. 

The six overdraft limit, as Ms. Fox testified, is analogous to what 

the FDIC did in the payday lending context where they determined 

that providing high-cost, short-term credit for long-term credit 

needs is an unsafe and unsound banking practice. 

Certainly, we have learned over the last several years that providing high-cost, unsustainable credit is not just bad for consumers; 

it is bad for the financial institutions and bad for our economy in 

general. 

11 

Both a reasonable, proportional requirement and the limit have 

precedent in the CARD Act, recently passed by this committee, 

where we provided protections to credit card recipients. 

At their best, banks and credit unions provide Americans valuable services and access to credit on fair and appropriate terms. We 

want to encourage people to enter the banking system, but they 

need to have confidence that those accounts are safe. The Overdraft 

Protection Act will ensure fair and transparent pricing for overdraft coverage and save Americans billions of dollars that is currently being taken from their hard-earned paychecks. 

Thank you. I look forward to your questions. 

[The prepared statement of Mr. Halperin can be found on page 

136 of the appendix.] 

Mrs. MALONEY. [presiding] Thank you very much. 

Next, Mr. Rod Staatz, president and chief executive officer of the 

SECU Credit Union in Maryland; and he is speaking on behalf of 

the Credit Union National Association. 

Welcome. 

STATEMENT OF RODNEY STAATZ, PRESIDENT AND CHIEF EXECUTIVE OFFICER, STATE EMPLOYEES CREDIT UNION OF 

MARYLAND (SECU), ON BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION (CUNA) 

Mr. STAATZ. Thank you. Madam Chairwoman, Ranking Member 

Bachus, and members of the committee, thank you very much for 

having me today. As you said, I am Rod Staatz, president and CEO 

of State Employees Credit Union of Maryland. I am also a member 

of CUNA’s board of directors. 

CUNA strongly supports the ability of credit unions to offer overdraft protection plans as a means to help their members resolve 

short-term financial problems. While the terms of the credit union 

overdraft protection programs may vary, they are structured to 

help pay rather than return nonsufficient funds transactions in exchange for fees that are similar to those charged for returned 

items. This spares the members the embarrassment of returned 

checks as well as additional fees charged by merchants. 

Such programs, when used appropriately by consumers, serve as 

a valuable alternative to overdrawing checking accounts or relying 

on payday lenders or check cashing businesses and are fully consistent with the philosophy and principles of the credit union system. 

CUNA recognizes there is a considerable interest in Congress in 

enacting a law to address abusive practices. However, we are convinced that H.R. 3904, as drafted, particularly the provisions that 

limit the number of overdraft fees, would simply end these programs. 

If the bill were law, consumers would incur more NSF fees and 

none of the benefits of having the transactions honored. They 

would pay more merchant return check fees and have more bad 

checks reported to credit bureaus. Inevitably, other adjustments 

will have to be made in checking account services and maintenance 

fees that will impact a wide range of account holders. 

I am very concerned that all consumers will lose under this scenario. We believe most credit unions approach overdraft protection 

12 

in a manner that is in the best interest of the participating member as well as the overall membership of the credit union. 

Several years ago, CUNA adopted a policy calling on credit 

unions offering overdraft protection service to adopt standards that 

emphasize the credit unions’ consumer orientation. This policy is 

included in my written testimony. 

Madam Chairwoman, my credit union offers an overdraft protection service which is similar to overdraft protection programs used 

by credit unions throughout the country. The objective of this program is to permit members on an occasional basis to have transactions completed even when they temporarily lack sufficient funds 

in their checking accounts or to spare them from merchant and collection agency fees incurred for return checks. 

A member can prearrange to have funds drawn from a selected 

savings account or establish a line of credit. And if he or she writes 

a check without enough funds in his checking account, the necessary funds are withdrawn from the other account or line of credit. 

There is no fee—zero—for these transfers. Our overdraft program 

allows SECU to pay an item after all funds in a member’s accounts 

have been exhausted or a prearrangement transfer plan has not 

been established. 

However, SECU does not allow members to draw their balance 

into the negative at the teller line, through ATMs, or through their 

debit card. Our program only pertains to written checks and 

preapproved ACH transactions. 

The member’s checking account is debited in the amount of the overdraft plus a $27 fee. The member is sent a nonsufficient funds 

notice explaining the account is negative and a deposit is required 

to bring the account into a positive status. If the account is not 

positive within 30 days, all future items will be returned NSF with 

the $27 fee. 

SECU does not market overdraft protection because we do not 

want to encourage members to live beyond their means. Knowing 

this is an option to cover overdrafts may lead some members to 

view it as available funds. 

If a specific member contacts SECU for a refund, we review the 

account and consider the specific circumstances. Also, we refer 

many of our customers to free counseling services. Those members 

who demonstrate repeated overdraft behavior will have progressive 

notification from warnings to account closure for overuse. In 2008, 

we had to close almost 500 checking accounts for overuse and 

abuse of the overdraft privilege. 

While we strongly agree overdraft abuses should be addressed, 

H.R. 3904 will have a dire unintended consequence which will result in harming consumers. 

As addressed in my written statement, some of the provisions of 

the legislation are positive and we would welcome the opportunity 

to work with you on them. We also think that the Federal regulatory system, which allows for a notice and comment process, 

should play a leading role to protect consumers from unintended 

consequences of Federal restrictions on overdraft programs. 

In addition to our strong objection to the limits on overdraft 

transactions that this legislation would impose, we have several 

13 

additional concerns regarding the bill, which are described in my 

written testimony. 

Madam Chairwoman, you will hear horror stories about how bad 

overdraft protection is, and you will also hear many heartwarming 

stories about how it has helped many credit union members. I encourage you to do an independent, unbiased survey of consumers. 

Go to the people who are really affected by this and ask them what 

they really think about overdraft protection. 

Thank you for the opportunity to testify today, and I look forward to answering any of the committee’s questions. 

[The prepared statement of Mr. Staatz can be found on page 176 

of the appendix.] 

Mrs. MALONEY. Thank you very much. 

Next, Mr. Oliver Ireland, who is a partner at Morrison & 

Foerster. 

Thank you for being here. 

STATEMENT OF OLIVER I. IRELAND, PARTNER, MORRISON & 

FOERSTER LLP 

Mr. IRELAND. Thank you, Madam Chairwoman, Ranking Member 

Bachus, and members of the committee. I am a partner in the financial services practice of Morrison & Foerster, and I worked for 

the Federal Reserve System for 26 years, 15 as Associate General 

Counsel of the Board in Washington. I am pleased to be here today 

to discuss H.R. 3904 concerning paying of overdraft fees. 

While paying overdrafts enables consumers to meet unexpected 

expenses and avoid failing to make timely payments, overdraft programs have been criticized as costly and unfair, particularly for 

small debit card transactions. H.R. 3904 would amend the Truth 

in Lending Act to require that consumers opt-in to overdraft programs, limit overdraft fees to 1 per month and 6 per year, require 

that overdraft fees relate to the actual cost of processing the overdraft, prohibit charges for ATM and debit card transactions that 

are declined, and regulate the order in which transactions are paid. 

The Federal Reserve Board has proposed to address overdrafts at 

ATM and debit card transactions, but H.R. 3904 would go well beyond the Board’s proposal. 

Applying the Truth in Lending Act to overdrafts is likely to be 

confusing to consumers, however. When checks result in an overdraft, the consumer would have Truth in Lending billing error 

rights and UCC rights; but when the check didn’t result in an overdraft, only the UCC would apply. A similar problem would occur 

for debit card transactions. 

In addition, it is not clear how the Truth in Lending Act disclosures would apply before an overdraft, and disclosing an annual 

percentage rate after an overdraft would be similar to the historical 

annual percentage rate that has been eliminated for credit cards 

because consumer testing found that it was not effective. 

H.R. 3904 applies the opt-in and the limitation on fees to check 

and ACH transactions as well as ATM and debit card transactions. 

The limitations on fees should not apply to check and ACH transactions. Businesses receiving these transactions typically charge 

significant fees for returned checks and ACH transactions that, 

when added to the NSF fees, lead to costs that significantly exceed 

14 

overdraft fees. In addition, failure to make bill payments on time 

due to a returned transaction may lead to other costs or the inability to obtain some services. 

H.R. 3904 would prohibit overdraft fees due to debit holds. This 

practice has been an issue with respect to pay-at-the-pump gas station transactions. Although there has been progress in addressing 

debit holds such as the VISA real-time clearing program, if fees for 

overdrafts due to debit holds are prohibited, merchants should 

have a duty to submit transactions promptly to help avoid these 

overdrafts. 

H.R. 3904 would require overdraft fees be reasonable and proportional to the cost of processing the transaction. Overdraft fees 

should be reasonable if the consumer has chosen to opt-into them, 

I would think, and in any event should reflect the credit risk inherent in these transactions as well as the processing costs. 

In addition, the limitation on fees in H.R. 3904 may prevent the 

payment of overdrafts that some consumers want paid. At a minimum, a limit should not apply to ATM transactions where the consumer proceeds with the transaction after the notice that the transaction will cause an overdraft. 

Finally, overdraft fees are an important source of revenue to both 

large and small banks and credit unions. Loss of overdraft revenue 

is likely to lead to the repricing of checking account services in the 

form of lower interest rates, more and higher account maintenance 

fees, and perhaps even per-transaction fees. In addition, consumers 

will need to manage their account balances more carefully and perhaps maintain higher balances to avoid timing errors. 

Thank you for the opportunity to be here today. I would be happy 

to address any questions that members of the committee may have. 

[The prepared statement of Mr. Ireland can be found on page 158 

of the appendix.] 

Mrs. MALONEY. Thank you for your testimony. 

Our next witness is Mr. Jim Blaine, president of the North Carolina State Employees Credit Union. 

STATEMENT OF JIM BLAINE, PRESIDENT, NORTH CAROLINA 

STATE EMPLOYEES CREDIT UNION 

Mr. BLAINE. Thank you, Madam Chairwoman. I appreciate the 

opportunity to testify today. I will not use your valuable time to 

read the testimony already submitted, but I would like to make a 

few brief comments about the need and importance of this bill and 

several of its provisions. 

As to the need for limits and the potential for abuse, personally 

I believe the overdraft protection service, such as Courtesy Pay, 

should be entirely banned, not because this service does not do 

some good, but because I am convinced the harm caused by the 

product far exceeds any good achieved. 

Having said that, this bill offers a compromise which seeks to retain the good of overdraft while controlling for that potential abuse. 

I would note that all members of this panel in their testimony acknowledged that abuse does exist in this product. This is why limits and proportional costs are so important in this regulation. 

As to opt-in, since this august panel has great difficulty in agreeing on just what this product is—disagrees on its definitions, disVerDate Nov 24 2008 16:53 Apr 22, 2010 Jkt 055815 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\55815.TXT TERRIE
15 

agrees on its impact, and disagrees on the best course forward, 

since this experienced professional panel cannot agree—we can all 

hopefully agree that it is very, very likely that the consumer has 

no idea about this product and has no understanding of it. Therefore, there is a definite need for consumer opt-in into this product. 

The consumer needs to make an informed choice. That can best 

be achieved by a chance to review options and have the product 

clearly explained by their institution. 

As to coming under Truth in Lending, this product is alone, and 

no sleight of hand, no semantics nor any Federal Reserve regulatory reluctance can ever alter that fact. 

As financial institutions, we will further damage our credibility 

by refusing to tell the consumer the blunt truth about this product. 

It is a loan. Truth in Lending is an established, well-understood 

regulation, and placing overdraft protection within that existing 

regulation, within that legal framework, will reduce that muchdreaded increase in potential regulatory burden. Let’s use the existing legal regulatory framework of Truth in Lending to manage 

this product in the future. 

As to personal financial responsibility, I am all for it, and I hope 

we all are—but the product being offered is discretionary at the 

whim of the lender. The lender when offering this product accepts 

no responsibility to the consumer. There is no contract for this 

product, no listing of rights, no listing of duties by either party. Absent those contracts and those agreements, there is an absence of 

transparency, there is an absence of disclosure. 

Lack of acknowledgement of responsibility by either party on this 

product is financially, commercially, and legally insane. In this economic environment, the banking industry might find that citizens 

of this country consider their pontification on personal and financial responsibility not only rings hollow, but sounds hysterically absurd. 

Lessening of service, higher banking costs. Can they get any 

more expensive than what we are dealing with now? Our organization serves as an example that institutions can thrive and can prosper without offering the overdraft service product. 

Representative Bachus, we also have indicated several initiatives 

we will take later next year to try to eliminate those NSF charges. 

Claimants for the demise of free checking, the free market, and 

perhaps the entire free world, may be a bit overstated if this product is reduced in the future. It is worrisome that some panelists indicate that the survival of their institution hinges on the income 

from this product. Why is it a concern? It is a concern because their 

institutions’ fate hinges on the future misbehavior of their customers and members. 

Lastly, wealth and earnings achieved through the misfortune and 

the misery of others should always be highly suspect, if not held 

in outright contempt. 

I look forward to your comments and questions. 

[The prepared statement of Mr. Blaine can be found on page 54 

of the appendix.] 

Mrs. MALONEY. Thank you for your really remarkable testimony. 

Mr. Dennis Dollar from Dollar Associates, LLC. 

16 

STATEMENT OF DENNIS DOLLAR, PRINCIPAL PARTNER, 

DOLLAR ASSOCIATES, LLC 

Mr. DOLLAR. Good morning, Madam Chairwoman. My name is 

Dennis Dollar. I served as a member of the National Credit Union 

Administration board from 1997 to 2004. I have been before this 

committee before, and it is a pleasure to be invited back. 

I also was the chairman of the National Credit Union Administration from 2001 to 2004. Prior to that appointment, I was president and CEO of the Gulfport VA Federal Credit Union, a relatively small—at that time—$32 million credit union with approximately 12,000 members in Gulfport, Mississippi. 

Since leaving NCUA, I formed a consultancy that works with 

credit unions and other financial service entities in their strategic 

initiatives. I guess you could say, from my experience, I have had 

the opportunity, Madam Chairwoman, to view the overdraft protection issue—as Judy Collins famously sang in the 1960’s—‘‘from 

both sides now.’’ 

Today, I have been asked by Ranking Member Bachus to come 

before you representing no particular group or organization, only as 

a former credit union CEO and a former regulator who now sees 

overdraft programs in action on a daily basis and whose experience 

indicates that while there are always ways in which such programs 

can be structured better for the consumers and the financial institutions they do business with, in my opinion, it would not be good 

public policy to completely eliminate them from the marketplace, 

as H.R. 3904 might effectively do. 

During my years in credit union management, there was no overdraft protection program in place, Madam Chairwoman. If a member wrote a bad check, we charged an NSF fee, and we returned 

the item. Needless to say, the members who, like all consumers, 

are always opposed to any user fees imposed on them, didn’t like 

this fee arrangement. They not only faced our NSF fee, but they 

were also charged with an additional returned check fee by the 

merchant to whom they wrote the item. Often, they faced late 

charges if the returned item was for their rent or their insurance. 

But these folks weren’t slugs or deadbeats. They were good, 

hard-working members who, on occasion, ran out of money before 

they ran out of month. It was for these members that the overdraft 

protection programs we are here today to discuss were originally 

developed to assist. 

Rather than being charged an NSF fee, the member would be 

charged an identical fee. And it is important to recognize here, 

Madam Chairwoman, that, if structured properly, an overdraft fee 

is not an additional fee above and beyond an NSF fee. It is an identical fee that they would be charged otherwise to honor the overdrawn item up to a specific fully disclosed limit, and that the item 

then must be settled within, according to credit union regulations, 

45 days, or it has to be written off and formal collection efforts 

begun. 

Credit union members, as did many bank customers, saw value 

in these programs because they were able to realize those additional cost savings associated with avoiding the merchant fees and 

the late charges, the cancellation of service, and even possible prosecution, Mr. Bachus. 

17 

A well-structured—and, again, I use that term because there certainly is abuse, and we have all seen those documented examples 

where there was manipulation of item clearance solely to maximize 

profits, or assessing the $35 in overdraft fees on a $5 debit purchase of a venti cup of latte at Starbucks. 

Those exceptions should be corrected and appropriately regulated. But overdraft programs, if done right—they can be done 

right and they should be done right—consumers and financial institutions benefit. 

There are standards that I provided in my written testimony 

that outline the way most responsible financial institutions, and 

certainly the credit unions that I work with, handle their overdraft 

programs today. Now, because some institutions don’t follow these 

best practices doesn’t, in my view, make a case to overregulate 

those who do with punitive or burdensome legislation that will result in many of their consumers losing their checking accounts and 

many institutions forced to transfer the cost of overdrafts from the 

consumers who use the program to the vast majority that do not. 

Now, my regulatory experience, Madam Chairwoman, does give 

me some pause about the potential impact on the long-term safety 

and soundness of some institutions that could come from effectively 

eliminating this source of earnings, but that is not why I am here 

today. My primary reason for supporting these types of programs 

is the benefit to the consumer that I saw taken away under the old, 

antiquated days of the NSF fee and legal prosecution in return to 

get their check or debit honored up to a clearly defined, clearly disclosed—and if institutions would do their jobs in financial education and making sure that the disclosures are appropriate and 

the members understood how this program is used, we would probably would not be sitting here today. 

But we do have to remember this: If there is no deterrent in the 

system, bad check writing will grow. A half century of NSF fees, 

often increasing in amount, proved to us that the number of overdrafts wouldn’t be lowered simply by charging fees. Overdraft programs with the proper disclosures and a financial education commitment as a part of the program offering can provide greater consumer value and, in my opinion, I think that it could enable us to 

avoid having to return to those dark days of the costly NSF fees. 

There is a way that a balanced regulatory approach, handled 

through the regulatory agencies without a statutory mandate, can 

keep consumers within the traditional finance institutions, but yet 

ensure that these programs are fully understood and transparent. 

That is what we would like to see. 

[The prepared statement of Mr. Dollar can be found on page 99 

of the appendix.] 

Mrs. MALONEY. Thank you very much for your testimony. 

The next witness is Ms. Ellen Bloom, director of the Washington 

Office and Federal Policy, Consumers Union. 

Welcome. 

STATEMENT OF ELLEN BLOOM, DIRECTOR, FEDERAL POLICY 

AND WASHINGTON OFFICE, CONSUMERS UNION 

Ms. BLOOM. Thank you, Madam Chairwoman, Ranking Member 

Bachus, and members of the committee. I am Ellen Bloom, director 

18 

of Federal policy in the Washington Office of Consumers Union, 

which is the nonprofit, independent publisher of Consumer Reports 

magazine. Our organization strongly supports H.R. 3904, the Overdraft Protection Act of 2009. We appreciate the chance to add our 

perspective on the impact current fee-based overdraft programs are 

having on consumers. 

First, I would like to briefly touch on telephone poll results from 

a nationally representative survey conducted by Consumer Reports 

National Research Center in February. This poll underscores two 

points: Consumers are often unaware of the consequences of overdrawing their accounts. When asked, however, they express a very 

strong desire to have more decision-making control over these feebased overdraft programs. Here are just a few of the findings: 

Only 52 percent of those surveyed who use debit cards had a correct understanding that a bank typically allows the transaction to 

proceed, covers the shortage from the next deposit, and charges a 

fee for doing so. 

According to our poll, consumers appear even more misinformed 

about ATM overdrafts. Only 31 percent know that the bank will 

permit a transaction, subsequently dock the account and charge for 

the loan. It was clear that many consumers simply didn’t expect to 

be charged a fee when they overdraft their account. To us it 

seemed clear, consumers would be unlikely to opt-out of a program 

of which they are unaware. And that is why CU strongly supports 

the opt-in language in H.R. 3904. 

At the same time, our poll reveals that consumers overwhelmingly want choice when it comes to their bank accounts. Two-thirds 

of consumers polled said they would prefer to expressly authorize 

overdraft coverage so that there would be no overdraft loan or fee 

unless they opted-in to the service. Two-thirds also said that banks 

should deny a credit card or an ATM transaction if the checking 

account balance is too low. In addition to our polling, we have had 

consumers share their frustrations with us about automatic overdraft programs. I have attached a compilation of these stories to 

my written testimony. 

I will highlight three now. Rachel from North Carolina explained 

to us that her bank manipulates the order in which they clear 

transactions in order to maximize the number of times she overdraws her account. A married mother of three, Rachel at one time 

found 7 overdraft charges for debit card transactions. Each of these 

was for purchases of less than $20, and at least half were under 

$10. One charge was even for a $1 beverage at a gas station. However, each of these transactions was penalized with a $35 fee. As 

Rachel explained to us, ‘‘They cleared the largest amounts first because they want to charge the fee on the $1 purchase.’’ Rachel went 

on to tell us, when you are taking $300 from us in 2 weeks, we get 

behind on other expenses. It literally took us 2 months to catch up. 

Justin from New York told us why he believes it is important to 

place strong limits on the number of times an institution can 

charge a fee for covering an overdraft. Justin told us that he was 

charged $385 for 11 overdrafts over a 10-day period. Some of these 

transactions were for less than $10. All but 2 were worth less than 

$50. Eventually, after multiple calls to the bank, Justin was refunded $100 of his $385 total overdraft fees. Justin told us that he 

19 

wishes he could just choose whether the bank covers the transactions when they overdraw his account. 

Don from Ohio described the snowball effect of overdraft fees. 

Don and his wife rely on a limited income, the paycheck from his 

part-time job, and the Social Security payment his wife receives for 

disability. Don checks his account balances regularly, but he was 

recently hit with a flurry of overdraft fees. One year ago this 

month, Don used his debit card and overdrafted his checking account by 35 cents. Before the bank had opened the next day, Don 

deposited $30 at the ATM to cover the 85-cent overdraft. A day 

later, he discovered he had incurred two overdraft fees, one for the 

85 cents, and the other because the $30 deposit had not covered the 

deficit caused by the first fee. The second overdraft even triggered 

another overdraft fee and an additional $5 per day fee for each was 

added. After haggling with his bank, Don reached a compromise 

and only paid for one of the $35 overdraft fees, but it was grueling. 

Mr. Chairman, members of the committee, the Overdraft Protection Act will go a long way to stop the abusive practices experienced by Rachel and Justin and Don and thousands of other consumers across the Nation. We applaud its introduction and urge its 

prompt passage. Thank you. 

[The prepared statement of Ms. Bloom can be found on page 58 

of the appendix.] 

Mrs. MALONEY. Thank you very much for your testimony. 

Our next panelist is Mark A. Colley, president and chief executive officer of the Tulsa Postal and Community Federal Credit 

Union, on behalf of the National Association of Federal Credit 

Unions. 

STATEMENT OF MARK A. COLLEY, PRESIDENT AND CHIEF EXECUTIVE OFFICER, TULSA POSTAL & COMMUNITY FEDERAL 

CREDIT UNION, ON BEHALF OF THE NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS (NAFCU) 

Mr. COLLEY. Good morning, Madam Chairwoman, Ranking Member Bachus, and members of the committee. My name is Mark 

Colley and I am here today to testify on behalf of the National Association of Federal Credit Unions, or NAFCU. I am the president 

and chief executive officer of the Tulsa Postal & Community Federal Credit Union, headquartered in Tulsa, Oklahoma. 

Tulsa Postal was chartered in 1923, making us the oldest credit 

union in the State of Oklahoma. We are a small credit union with 

11 full-time employees and approximately $23.6 million in assets. 

U.S. Postal Service employees and retirees, as well as their family 

members, make up most of our membership base. The rest of our 

members are people who live, work, or worship in Tulsa County 

and are classified as underserved. 

Most credit union members welcome and appreciate the opportunity to benefit from a courtesy pay or an overdraft protection program and consider it useful and a convenient service. Overdraft 

programs can prevent high fees and penalties that result from 

bounced checks, and provide important financial coverage in unexpected circumstances when members may need it the most. At 

Tulsa Postal, we currently offer courtesy pay programs to 936 of 

20 

our 1,440 checking accounts. Only 2 of the 936 members have chosen to opt-out of our courtesy pay program. 

In order to be enrolled in the program, a member must first select a transfer from another deposit account as the first overdraft 

coverage option. Courtesy pay is not triggered until all transfer options have been exhausted. We have several casinos in our area, 

and if we notice frequent casino activity, we shut off the debit 

cards and the courtesy pay program to them. We also do not report 

any of our overdraft protection balances to ATM or debit networks. 

If a member comes to us, concerned that they have overdrafted 

their account because of an error, we refund 100 percent of the 

courtesy pay fee they were charged. If this happens multiple times, 

we ask them to come in so we can educate them about the proper 

use of the program. 

I have read the stories about individuals who have been charged $35 for spending just a few dollars more than they have in their 

accounts. At my credit union, we refund these fees, provided the 

member does not abuse the privilege. We have never had a single 

member complain about our courtesy pay program. 

NAFCU appreciates the Overdraft Protection Act’s efforts to address our concerns regarding the credit union usury ceiling. We believe the bill is well-intended. H.R. 3904 is still problematic from 

a credit union perspective, and NAFCU maintains several significant concerns with this legislation. 

First, the current opt-in provision would impose a considerable 

regulatory burden on credit unions and create consumer confusion 

among those who believe they already have this particular product. 

NAFCU would support language establishing an opt-out requirement instead, allowing existing members who are currently covered 

by overdraft protection programs to deny the coverage if they wish. 

We could also support an opt-in requirement for new members or 

customer accounts. 

NAFCU is also concerned about provisions in the bill limiting 

NSF fees for debit and ATM transactions. These types of transactions are covered by financial institutions when made, even if 

there are insufficient funds in the account when cleared. Since the 

transaction is authorized by the merchant at the time it takes 

place, the credit union is contractually liable to post the payment, 

even though the funds are not available in the consumer’s account 

to cover it. 

Many merchants do not verify balances in real time. This provision therefore appears impractical and impossible to comply with. 

The limitation to one overdraft fee per month is highly problematic 

for the vast majority of credit unions that receive transactions not 

processed by merchants in real time. Further, providing same-day 

notification to members who have overdrawn their accounts would 

be another considerable burden for credit unions, as they may not 

learn that an overdraft has taken place until all transactions clear 

at the end of the day. NAFCU could support a more reasonable notification time frame. 

NAFCU is also concerned about the bill’s limitation on the number of overdraft coverage fees. We believe that the restriction to 1 

overdraft fee per month and 6 per year would significantly limit 

consumer choice. An alternative would be to require financial instiVerDate Nov 24 2008 16:53 Apr 22, 2010 Jkt 055815 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\55815.TXT TERRIE
21 

tutions to send a notification to consumers who have overdrafted 

several times during the course of the month, listing the options 

available to them. 

In conclusion, I would urge the committee to keep in mind that 

consumers can avoid overdraft fees, no matter what the law is, in 

one simple way, by managing the funds in their accounts. Increased focus on financial education funds and literacy to teach 

consumers this personal responsibility would make the need for 

overdraft protection moot. 

We urge the committee to take these concerns into account and 

make significant changes to the legislation before it moves forward. 

I thank you for the opportunity to testify and the privilege of being 

here today, and I welcome any questions that you may have. Thank 

you. 

[The prepared statement of Mr. Colley can be found on page 85 

of the appendix.] 

Mrs. MALONEY. Thank you very much. 

Next, Mr. Richard Hunt, president of the Consumer Bankers Association. 

STATEMENT OF RICHARD HUNT, PRESIDENT, CONSUMER 

BANKERS ASSOCIATION (CBA) 

Mr. HUNT. And a very good morning, Madam Chairwoman, 

Ranking Member Bachus, and members of the committee. My 

name is Richard Hunt and, like many Americans, I too have overdrafted. 

I am president of the Consumer Bankers Association and it is indeed an honor to appear here today representing retail bankers. 

For more than 90 years, CBA has served as the voice of the retail 

banking industry, which provides banking services to meet the 

needs of consumers and small businesses. Our members are regional and supercommunity banks, as well as bank holding companies. I appreciate the opportunity to appear before you. 

I want to provide a little bit of an insight about the services 

Americans may not be receiving from the media and the industry 

critics. Courtesy overdraft services are just that, a courtesy that 

banks have traditionally offered as a service to their customers. 

Our members report and statistics show the vast majority of customers manage their checking accounts in an appropriate manner, 

but even the most responsible consumer can overdraw an account 

every once in a while. When this occurs, the bank has one or two 

options. It can bounce the check, or deny the debit card transaction, or it can honor the check for the debit card purchase and 

assume that risk. 

If the bank does indeed deny these transactions, which we believe will occur at a more frequent rate if this legislation is enacted, several things will happen to the consumer. They will pay 

a fee to the bank; they will find themselves at a register, possibly 

the Rayburn Cafeteria, with a plate full of salad and no possible 

way to purchase that salad. They will surely face late payment fees 

and delinquencies from a merchant or creditor, and as previously 

mentioned, the consumer may also be at risk of violating State 

laws pertaining to bad checks. 

22 

With this in mind, it is easy to understand why bank customers 

overwhelmingly prefer the bank to honor overdraft transactions, 

even when they result in overdraft fees. It is an important benefit 

thousands of banks provide to millions of customers. 

Although it may seem reasonable to expect that a bank customer 

will not overdraft an account, more than once a month or 6 times 

a year, as this legislation mandates, I can tell you this is not always the case, even for the most responsible customers. For example, a consumer can write several checks, not realizing their spouse 

also recently made transactions, whether it was an ATM machine 

or a check. If a bank is not allowed to charge an overdraft fee when 

those checks bounce, the bank simply may not honor these charges. 

Indeed it may not be a safe or sound banking practice to honor the 

transactions without charging a fee. The bank is paying money 

with the risk of not being paid back. 

Yes, there are anecdotes of a $39 cup of coffee resulting from an 

overdraft debit card transaction. These are abnormal cases. They 

do not reflect how the vast majority of bank customers manage 

their accounts. Congress ought not legislate based on anecdotes, especially when the legislation will harm a far greater number of customers than it helps. 

In closing, Madam Chairwoman, my own personal experience 

with overdraft protection was a relief. Despite having numerous 

ways to access my account balance, I simply had one transaction 

too many. Had it not been for the courtesy extended to me by my 

bank, I would have had more hassle and more cost. I paid the fee 

and was grateful the service was there. That allowed me to continue with my life without interruption. 

I appreciate the opportunity and look forward to any questions 

you may have. 

[The prepared statement of Mr. Hunt can be found on page 150 

of the appendix.] 

Mrs. MALONEY. Thank you very much for your testimony. 

Our last panelist is Mr. R. Michael Menzies. He is the president 

and chief executive officer of Easton Bank and Trust, and he is testifying today on behalf of the Independent Community Bankers of 

America. Thank you. And he is a former New Yorker, so welcome. 

STATEMENT OF R. MICHAEL S. MENZIES, SR., PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, EASTON BANK AND TRUST 

COMPANY, ON BEHALF OF THE INDEPENDENT COMMUNITY 

BANKERS OF AMERICA (ICBA) 

Mr. MENZIES. Thank you, Madam Chairwoman. It is an honor to 

be back with you and Ranking Member Bachus and this distinguished committee today. I am truly proud to represent the Independent Community Bankers of America on this important legislation, and I am beyond thrilled that Mr. Hunt has introduced the 

notion that the elimination of overdraft protection could produce divorce. I hadn’t thought of that one. 

There are 8,000 community banks in this country, most of which 

are at or below $10 billion in total assets. The only thing my peers 

and I can do to compete in this industry, the only thing we can do 

is to serve our customers better than the competition, and that inVerDate Nov 24 2008 16:53 Apr 22, 2010 Jkt 055815 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\55815.TXT TERRIE
23 

cludes with the quality and fairness of the overdraft services we 

offer. 

Three-quarters of community banks provide some form of overdraft protection, and all of those do so fairly and in a way that best 

meets the needs of their customers. However, community bank customers understand that when they spend money that does not belong to them, there are consequences and costs. While community 

banks always seek to treat customers honestly, the same expectations must hold true in reverse. Customers should not, and generally do not, expect a free pass when they overdraw their accounts. 

The alternatives for a customer include merchant returned check 

fees, possible credit report and bad check database blemishes, collection hassles, embarrassment, and the list goes on and on, as the 

panelists have suggested. These alternatives are far worse than incurring an overdraft fee. 

ICBA supports provisions of H.R. 3904 and improved disclosures 

for consumers, and restrict deceptive advertising, and encourage 

excessive use of overdraft programs. These efforts will go far in 

preventing unscrupulous providers of these services from taking 

advantage of consumers. 

However, we are very concerned with other provisions of the bill. 

I outlined all of these concerns in my written statement, but I 

would like to discuss three of them in my oral statement. 

First and most important, this legislation fails to distinguish 

clearly between discretionary overdraft coverage and automated 

programs that have drawn the ire of many for the so-called $35 cup 

of coffee. Discretionary coverage involves a banker, not a third 

party vendor or program, evaluating specific overdrafts on a caseby-case basis. These usually involve most important consumer bills, 

like a mortgage payment, a car payment, the utility bill, paid by 

a check or an ACH. It is these situations that demonstrate the 

strength and importance of the relationship-driven model of community banking and how overdraft coverage can be the most personal service a banker can provide. In fact, the Federal Reserve has 

acknowledged that these services should not be lumped into regulation along with automated overdraft programs. 

Second, we are strongly opposed to placing arbitrary price caps 

and limits on overdrafts, especially when tied to the cost of processing versus the amount overdrawn. If caps were imposed, community banks who are proven risk managers must find other ways 

to manage that risk. This could include elimination of popular 

checking account features, cutting off debit cards for overdraftprone customers, and, more likely, closing accounts. An unintended 

consequence of this clearly could be expanding the ranks of the 

unbanked. 

Third, while we appreciate that the legislation calls for a study 

on the feasibility of point-of-sale overdraft for consumers, the fact 

remains that even for ATMs and branch tellers, the means do not 

exist to verify with 100 percent certainty that a transaction at a 

given time will not lead to an overdraft situation shortly thereafter. 

Not all banks and merchants process debit and ATM transactions 

in the same manner or at the same time. And banks that use a 

24 

daily ledger balance, rather than real-time ledger balances, won’t 

be able to comply with any real-time requirements. 

In conclusion, we are very concerned that this legislation attempts to restrict the supply of overdraft coverage while ignoring 

the fact that community bankers offer these programs to meet our 

customers’ demand. In a perfect world, consumers would never find 

themselves facing an overdraft situation. But given what we know 

of consumer behavior, community banks need to be able to provide 

all types of overdraft coverage to our customers, while also receiving a competitive fee for the cost and risk of paying transactions 

for customers with the bank’s own funds. Furthermore, any legislation that increases the number of returned checks and debit transactions, as I believe this legislation will as currently drafted, is not 

good for consumers. 

Thank you so much and I look forward to answering your questions. 

[The prepared statement of Mr. Menzies can be found on page 

167 of the appendix.] 

Mrs. MALONEY. I would like to thank everybody for their testimony, and I would like to yield first to Mr. Ellison who has a conflict with another important meeting. I yield Mr. Ellison 5 minutes. 

Mr. ELLISON. And let me thank the chairwoman who has distinguished herself in many ways on behalf of the participants of the 

American economy at large, including American consumers. Thank 

you, Madam Chairwoman, for this hearing today. 

My first question is to Mr. Halperin. How much does it cost, to 

the best of our knowledge, to process an overdraft transaction—an 

overdraft? How much does it cost, everything? 

Mr. HALPERIN. The processing costs alone for an overdraft are 

fairly minimal. At this point, if there is an automated program, 

often those things can be handled without human intervention in 

terms of the decision to cover the overdraft. And then if it is a discretionary program, there will be some staff time. 

Mr. ELLISON. Okay. If we could from the best that we know—and 

I want to ask this of everybody, don’t give me a long answer because I only have a few minutes—is it more than a dollar to process an overdraft? Let’s start with you, Mr. Halperin. Is it more 

than a dollar? 

Mr. HALPERIN. If it is more, I don’t have a precise number. If it 

is more than a dollar, it is not much more than a dollar. 

Mr. ELLISON. Is it more than $2? 

Mr. HALPERIN. I imagine it would be somewhere in that range. 

Mr. ELLISON. Ms. Feddis, I am reading your body language. Is 

it more than $2? 

Ms. FEDDIS. Sir, we don’t— 

Mr. ELLISON. Now, don’t give me a long answer, because I will 

cut you off if you do. 

Ms. FEDDIS. I think you have to go beyond just processing. I don’t 

know what that number is. I suspect it probably is more than $2, 

but you have to go beyond just processing. There are other costs 

associated with having an overdraft, whether it is lost income, because you can’t earn interest on a zero balance. It is much more— 

Mr. ELLISON. Ms. Feddis, of course, I am very sensitive to who 

you represent and why you’re here, and that is fine with me. I 

25 

think we need everybody in this economy, everybody. But I am just 

trying to get information. Is it $5 to transact an overdraft fee? How 

much does it really cost? 

Ms. FEDDIS. I don’t know, but there are more costs than just the 

electronic blip. 

Mr. ELLISON. $5? 

Ms. FEDDIS. It is probably more. 

Mr. ELLISON. $7? 

Ms. FEDDIS. It is probably higher. 

Mr. ELLISON. I have a feeling that if I said it was $100, you 

would say it is probably higher. 

Ms. FEDDIS. No, I wouldn’t say that. I don’t know, but I have 

talked to one analyst who suspected it was more; it was certainly 

over $10. 

Mr. ELLISON. Let’s say it is $10; let’s just say that. Mr. Halperin 

says no way; you say $10. Can we all say $10 is in the neighborhood— 

Ms. FEDDIS. I don’t know. 

Mr. ELLISON. Okay. Well, if you don’t know, then you don’t know. 

Ms. FEDDIS. Well, that is what I said. 

Mr. ELLISON. Okay, fair enough. But you did say— 

Ms. FEDDIS. No, I said I heard from one analyst. 

Mr. ELLISON. Let’s just say it is $11, okay, just so we can talk about what we are here to talk about. If it is $11, Ms. Fox, how 

do they end up with $37, $39—how do they—even if it is $11, how 

do they end up with $39? 

Mr. FOX. Because they can. Banks put their fee information in 

the fine print, as the GAO found when they did their survey of 

banks. It is hard for consumers to get that information before they 

open an account. So you don’t have competitive pressure on the size 

of the fee, and consumers don’t think they are going to incur it. 

Mr. ELLISON. Thank you. 

Mr. Ireland, I appreciated your comments. Why can’t Ms. Feddis’ 

organization and other folks who represent the banking industry 

support at least the opt-in provision that is contained in the bill? 

Mr. IRELAND. I can’t speak for Ms. Feddis. 

Mr. ELLISON. I am not asking you to speak for her. Why can’t 

the banking industry say, okay, we will support the opt-in; we are 

not for everything, but we are for the opt-in. 

Mr. IRELAND. In my testimony, I didn’t argue with the opt-in. 

Mr. ELLISON. Okay, I know you didn’t. And the reason I am asking you is because it seemed to me, as I read your piece, that you 

sort of were looking at both sides of this thing. 

Mr. IRELAND. It seems to me you are going to do an opt-in, and 

why don’t we talk about— 

Mr. ELLISON. But what I am asking you is, how does it harm industry for an opt-in—or do you agree that it doesn’t? 

Mr. IRELAND. I think there will be a revenue impact of an optin that will lead to some repricing of the account. 

Mr. ELLISON. So what is wrong the opt-in, Ms. Feddis? 

Ms. FEDDIS. The ABA does support choice, we have always supported choice. Most banks, as the FDIC found— 

Mr. ELLISON. Remember, 5 minutes. If I had 20 minutes, I would 

let you talk as long as you wanted. 

26 

Ms. FEDDIS. Oh, I am trying to answer the question. I’m sorry. 

Mrs. MALONEY. I grant the gentleman 2 additional minutes so 

the lady can answer the question. 

Mr. ELLISON. Thank you. 

Ms. FEDDIS. Thank you, Madam Chairwoman. We do support 

consumers having choice. As the FDIC found, 86 percent of banks 

do offer the choice, opt-in or opt-out. Generally— 

Mr. ELLISON. Thank you very much. And so, I think I am out of 

time and I want to thank the chairman again. I want to thank everyone on the panel, because I think we are all here trying to get 

to the right answer. Thank you very much. 

Mrs. MALONEY. Reclaiming our time, I grant the gentleman, 

Ranking Member Bachus, 5 minutes. 

Mr. BACHUS. I thank the gentlelady. Opt-in, there seems to be 

quite a bit of confusion over whether the banks and credit unions 

can do this. Are you saying, Ms. Feddis that 80 percent of the 

banking institutions allow opt-in? 

Ms. FEDDIS. No. They allow choice, either opt-in or opt-out. Most 

of them allow opt-out. About 11 percent, according to the FDIC 

numbers, which only represents the banks surveyed, about 11 percent provided opt-in and 75 percent opt-out. 

Mr. BACHUS. All right. 

Ms. FEDDIS. I am not sure that, as I said, we support opt-out, 

because the consumer testing has found that most people want 

overdrafts covered and that the default should be for the preference 

of most people. But opt-in is certainly something we would consider. 

Mr. BACHUS. Something what? 

Ms. FEDDIS. Something the industry would consider. And some 

institutions are already moving toward opt-in. Some even large institutions don’t allow any sort of debit card overdrafts, but that is 

something we would consider. 

Mr. BACHUS. Mr. Colley, you said that it is a problem, opt-in; is 

that right? 

Mr. COLLEY. Yes, I did. For our current members who are on the 

program, it would be a really large regulatory burden to try to get 

in touch with them, and also lead to more confusion for them to 

sign up for something that they perceive that they already have. 

Mr. BACHUS. What if there were opt-ins for new consumers? 

Mr. COLLEY. NAFCU does not have a problem with that, sir, and 

neither do I personally as a CEO. 

Mr. BACHUS. What about Mr. Hunt? 

Mr. HUNT. Mr. Bachus, we think it would lead to mass confusion 

for consumers if you required current customers to opt-in. 

Mr. BACHUS. No, I’m talking about new customers. 

Mr. HUNT. Sure, that is a viable option. Many of our banks are 

in fact doing that. They are opting-in for new customers. We think 

it is better for current customers to have the ability to opt-out of 

overdraft fees. 

Mr. BACHUS. No, I’m talking about new customers. 

Mr. HUNT. Yes. Many of our banks are already going that direction, and we think that is a viable alternative. 

Mr. BACHUS. I know there still—I am trying to maybe get some 

things that we could agree on. 

27 

Now the debit cards, I think we all would agree that if the technology was there, we would deny those at the point of sale; is that 

basically right? Mr. Ireland? 

Mr. IRELAND. There is—many banks find that if they check the 

balance when the transaction goes through at the point of sale and 

there is not money there at the time the debit card is used, there 

is money there when the debit settles a day or 2 later. And so there 

is a lack of precision—you could deny the transaction, but you 

would deny a lot of transactions that now actually get paid. 

Mr. BACHUS. But what I am thinking, let’s just assume a decision was made from a policy standpoint that they were going to 

deny it if they checked at that time. 

Mr. IRELAND. They could do that. 

Mr. BACHUS. Can the small banks—Mr. Menzies, you were telling me that some of the community banks, some of those don’t 

have that ability? 

Mr. MENZIES. Absolutely true, Congressman. Many banks process these items differently and we don’t have real-time capacity, 

because we are focused on serving our customers, not just on buying the most expensive technology of the day. 

Mr. BACHUS. Mr. Halperin—and I don’t want to put words—the 

larger banks are—they have that ability, right? 

Mr. HALPERIN. Mr. Bachus, all banks have the ability to deny. 

Our affiliated credit union is quite a small credit union and we 

deny transactions. We currently have a real-time system, but even 

when we had a posting system, we denied those transactions that 

would overdraft the account. We have heard other people on the 

panel today who also have testified that they deny debit card transactions from smaller institutions. But there is one very large institution, Citibank, that says its policy is to deny debit card transactions— 

Mr. BACHUS. And you like that policy; is that correct? 

Mr. HALPERIN. Yes, we think debit card overdrafts, as the Federal Reserve found, often provide very little or no benefit to the 

consumer; there is no avoidance of a fee, which I know is one of 

your concerns in your opening remarks over the NSF fee and the 

bad check issue. That simply is not present in the debit card context. So we think a denied debit card transaction, unless the consumer has chosen a line of credit or another method to have that 

covered, is the preferable outcome. 

Mr. BACHUS. I think everyone agreed that a line of credit is a 

better alternative. And if you did start denying debit card transactions at the point of sale, that would encourage people to come 

in and open a line of credit, I would think. Ms. Fox? 

Mr. FOX. Yes, one of the important side benefits of requiring optin in limiting this problem of overdrafts is that banks will have an 

incentive to promote their much more affordable, more appropriate 

products. Their line of credit simply costs about 18 percent a year, 

and consumers get to pay it back in installments. Banks have 

transfer services. If they have to get you to sign up, they have to 

offer all their products. People are likely to get a cheaper option. 

Mr. BACHUS. Now ATM—can all institutions tell them, when 

they use their ATM card, whether or not it will overdraft their account? 

28 

Mr. IRELAND. Some institutions can tell on their own ATM. I am 

not aware of anybody who has an arrangement that, if you use another institution’s ATM, that they have that communication facility 

at this time. 

Mr. BACHUS. Would we all agree that if you can tell them that 

you shouldn’t overdraft their account, does ABA agree with that? 

Ms. FEDDIS. We would support providing the option to proceed 

with the transaction at the ATM’s—for ATMs owned by that institution. As Mr. Ireland points out, it is not possible with today’s systems to do it at the point of sale, to give the option at the point 

of sale or at another ATM. 

Mr. BACHUS. Because I do think that if you approach your 

ATM—and you used to, but I think the banks have stopped doing 

this, but I thought—for a while I think there was actually—and I 

think this is very misleading, the balance would include the overdraft, their ability to overdraft, even the line of credit, which— 

Ms. FEDDIS. The regulation now prohibits that. 

Mr. BACHUS. It now prohibits that? 

Ms. FEDDIS. The Federal Reserve did address that. 

Mr. BACHUS. So if it can be done. 

Now, Mr. Menzies, can the small banks let people know at the 

ATM, if it is there—obviously, can we agree if it is their bank’s 

ATM— 

Mrs. MALONEY. I grant the gentleman an additional 2 minutes. 

He is well over his time. 

Mr. MENZIES. Congressman, we do not show our overdraft privilege customers being available at the ATM, because we don’t want 

that, quite frankly. We want it there for protection for checks and 

debits. But your question was—- 

Mr. BACHUS. When they use their ATM, if it would overdraw 

that account, do you know—do they get that note— 

Mr. MENZIES. They don’t have access to the funds at the ATM, 

at our ATM. They are not allowed to go to the ATM and use the 

debit card and access their privilege account at the ATM. 

Mr. BACHUS. Oh. 

Mr. MENZIES. We don’t want them using it at the ATM for a cash 

fund because the purpose of it is to protect against bounced checks 

and debits. 

Mr. BACHUS. All right. Do the banking institutions have a problem with processing checks in the order they come in? I would ask 

the American Bankers Association. 

Ms. FEDDIS. Well, I guess under this bill it probably isn’t necessary to address the posting because it is capped at one per 

month, so it doesn’t matter what the posting order under this bill. 

It wouldn’t be necessary to address it. 

Mr. BACHUS. I am not talking about under this bill. 

Ms. FEDDIS. It is a very complicated and much litigated issue. 

Mr. BACHUS. No, no. But what I am asking is, do you object to 

processing them in the order they come in, is that— 

Ms. FEDDIS. Well, I can’t give you a straight answer because it 

is very complicated, the payment order. In fact, Mr. Ireland has actually studied it. 

Mr. BACHUS. My bank processes them in—they used to process 

them in a different order. And I actually asked them, I said you 

29 

hear all this stuff about how they take the large ones so they can 

get—and my bank, which is a large bank, actually said they quit 

doing that because they didn’t think it was fair to their customers. 

Ms. FEDDIS. Well, a lot of times people do want—and the consumer testing has found this—people want important payments 

made and they tend to be large—the mortgage, the rent—and so 

if they want those paid—and so that is why some institutions have 

done that. According to the FDIC, about half of the banks actually 

process small to large, about 24 percent under their survey found 

that it was— 

Mr. BACHUS. Okay. 

Ms. FEDDIS. The banks have been sued for both. One large institution was sued for paying low to high. And what people really 

want is— 

Mr. BACHUS. At least we clarified it, right? 

Mrs. MALONEY. The gentleman’s time has expired. 

The Chair grants herself 5 minutes. One of the purposes of the 

bill is what the gentleman is trying to clarify; more information to 

the consumer will help them, particularly during this extreme financial time, to better manage their own money. And the bill does 

have in it a specific prohibition to having financial institutions list 

on ATMs more money than what the consumer has. If it includes 

a line of credit, if it includes other access to capital, people are misled. They think they have money they don’t have. It is one reason 

that we worked very hard to have this under the Truth in Lending 

provision so that consumers will have more understanding of what 

is happening. 

I would like to ask Ms. Feddis and Mr. Hunt and others from financial institutions if you could explain why overdraft plans are 

the only financial product now where in essence you take the consumer’s money without the consumer’s permission? Why is that the 

only service that you have this means of operating? Mr. Hunt? 

Mr. HUNT. Thank you, Madam Chairwoman. I want to tell you, 

we want to make sure our customers are always happy. We know 

in this time that if a customer is not happy with the services we 

provide in this day in time, they can quite frankly go to their terminal and open an account at another bank to do that. 

When a person does sign up for a deposit account, there is a deposit agreement they do sign, that says we have the opportunity 

to offer services for a fee. And that is what we do. As we have stated many times before, this is a very popular program we offer to 

our consumers. We do not like overdraft fees. We do not want 

someone to overdraft. That is why when a person signs up, we tell 

them about lines of credit, lines of credit to their savings account, 

their checking account, and everything else. 

Mrs. MALONEY. Mr. Hunt, what we are hearing from consumers 

is, why are they paying for a service that they don’t want? These 

consumers are telling me that they would prefer for their debit 

card to be declined, for their check to be declined, as opposed to 

being charged the $35 fee for—many times it is an incidental. 

I would like to ask you, how is this action any different from a 

Burger King charging you for a hamburger you don’t even want? 

In that case, it would be called a robbery, taking someone’s money 

for a product they don’t even want. What we are told is that conVerDate Nov 24 2008 16:53 Apr 22, 2010 Jkt 055815 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 K:\DOCS\55815.TXT TERRIE
30 

sumers go to their banks and say, we don’t even want the fee, we 

don’t want the protection, we don’t want the service. And some financial institutions are forcing them into a program they don’t 

even want. 

But I would like to ask you, what if Burger King were to take 

your money for a product without asking for it? Wouldn’t you be 

a little disturbed? That is why we have an opt-in so people can decide what they want. And how is what some financial institutions 

are doing different from McDonalds or Burger King, automatically 

charging you for fries or a burger that you don’t even want and you 

are charged for something that you would prefer not to have? How 

is that fair? 

Mr. HUNT. Madam Chairwoman, I appreciate the question, and 

I will tell you this: If a customer does not want any overdraft protection, it is very simple. You go to the bank and you tell them, 

I want to opt-out. The bank will adhere to your wishes. 

I will also tell you, the mention of the $35 fee that everybody 

keeps mentioning, that is the maximum fee that a bank imposes. 

Most of the time when you an accidental overdraft, a person who 

may overdraft 1 time a year, the fee is lower than that, roughly 

$10 or $15. And I will tell you, Madam Chairwoman, if you go to 

your— 

Mrs. MALONEY. Again, sir, that may be your institution.The aver- age we are reporting is $35. And sometimes it can be $35 for each 

transaction. I have had consumers come to me and tell me that at 

the end of the weekend, they were charged $300 or $600 because 

they didn’t know that the pack of gum, the carton of milk, the 

sandwich, the cup of coffee, with each purchase incurred a $35 fee. 

So I would like now to ask some of the consumer groups on this 

opt-in and opt-out situation. I would like them to expand on optin and opt-out. And isn’t it better to let consumers make a choice 

about what products they want? 

Mr. Halperin, Ms. Fox, Ms. Bloom, if you could expand please? 

The opt-in, opt-out is a big issue, and I would like you to expand 

on why you prefer the opt-in over the opt-out. 

Mr. HALPERIN. Madam Chairwoman. 

Ms. FOX. You go first. 

Mr. HALPERIN. The opt-in will create a critical moment of choice 

where consumers can be given all their options and choose that 

cheaper, contractually obligated option, the one that will always be 

there, the line of credit or another option. 

One thing consumers experience repeatedly is that they cannot 

opt-out of their bank’s overdraft programs, especially at larger financial institutions. There have been some recent changes announced by large financial institutions where some are moving towards an opt-out, and we are happy to hear that. But repeatedly, 

we hear from consumers that they can’t get out of their program. 

Opt-in is critical because it creates that moment of choice. 

Ms. FOX. And the interesting thing is that back in 2005, the 

bank regulatory agencies issued some guidelines, and they said 

banks should get consumers to opt-in to their overdraft program. 

And failing that, they should at least let them opt-out. And as the 

FDIC survey found, a significant portion of banks won’t even let 

you opt-out. So what happens is banks also won’t let you close your 

31 

account or freeze your account when you owe them an overdraft 

fee. And that causes a real burden as well. 

Mrs. MALONEY. Well, if I could just comment, in the 1960’s, some 

creditors sent unsolicited credit cards to consumers and there was 

an absolute outcry, and Congress had to step in to stop that and 

ban that practice. Isn’t this basically the same thing, where they 

are giving you something you don’t want that actually costs you 

money? 

Mr. FOX. That is right. This is the only form of involuntary credit 

we know about. Banks mail out debit cards to their customers that 

can be used as credit cards. These were sold to people as a substitute for cash. People don’t know, they don’t think that they can 

get into debt by using their debit card. They think their bank will 

reject it if they don’t have enough money to cover it. That is what 

the system should do. This is not a credit instrument. It should be 

a payment instrument, and banks should not be permitted to mail 

out live debit cards that can trigger debt. 

Mrs. MALONEY. Thank you. Mr. Posey from Florida is recognized 

for 5 minutes. 

Mr. POSEY. Thank you, Madam Chairwoman. I want to thank everyone on the panel for some spectacular testimony. Some of it was 

a little conflicting, but I think it was all sincere from your perspective and very enlightening to us. I wish we weren’t here to even 

have to talk about overdraft, and there wasn’t a need for such a 

thing, and that there could be no abuse by the borrower or the 

lender, but that we know in reality and in commerce that is going 

to be necessary occasionally. And we know that ultimately at the 

end of the day, there is, or at least one would think there should 

be, some consequences for not paying obligations that you promised 

to pay. I hate to use that term, it scares a lot of people, it is called 

personal responsibility. 

And sometimes, I wonder if more government and more regulation and less personal freedom also means less personal responsibility; if at the end of day, we don’t really hurt people more than 

we help them. And what I want to make sure is the unintended 

consequences of what we are looking at don’t go too far overboard. 

I know the $1 Coke really hit my nerve, it seemed pretty outrageous. It reminded me of the last time I was 1 minute late for 

getting my dime in a parking meter, and it was a lot more than 

$35, and they do that to poor people and rich people, it really 

doesn’t matter. The parking meter doesn’t do an analysis on how 

much it costs City Hall to collect that thing, whether we think it 

is fair or not fair. That is the cost of parking there, and if you don’t 

want to pay a huge fine, make sure you get your nickel or quarter 

in there on time. Again, it is personal responsibility. 

I wonder, from any of the consumer organizations, and just respond if you know this for a fact, has there been a survey that has 

just been straight up: Would you prefer overdraft protection at $35 

a crack, or would you prefer nonsufficient funds at $35 a crack, and 

possible legal liability? Has anyone asked their respondees that 

question and framed it just like that in this polling? I would like 

to hear from you if you have. 

Mr. HALPERIN. Congressman— 

Mr. POSEY. If you haven’t asked that exact question. 

32 

Mr. HALPERIN. That exact question, worded that way? We have 

not asked the question worded in that fashion. 

Mr. POSEY. Because I think that is the bottom line for most of 

my people back home. I know I would not want to pay a $35 fee 

for an overdraft, but I would much less want to pay a $35 nonsufficient funds fee and have my check bounced. 

Mr. HALPERIN. Congressman, we did ask—as I mentioned in my 

opening remarks, debit card transactions are driving the overdraft 

volume—the analogous question for debit cards, which is: Would 

you rather have it declined or have the transaction processed and 

pay the fee? And for debit cards, the numbers were 80 percent of 

the consumers would rather have it declined; 75 percent of consumers who had overdrafted in the last 6 months would prefer to 

have it declined in the debit card context. 

Mr. POSEY. Okay, the next question. A lot of times I think it is 

perceived that we are looking at huge banks exploiting people in 

the marketplace, day in and day out up here. But we have representation here from a lot of community banks and credit unions. 

And I would interested in knowing from them what the unintended 

consequences might be of this: If we regulate this to a $10 charge, 

and if people opt-in and say, look, for $10 a transaction, we will 

pay all the bad checks that you ever want us to pay, what that 

could mean at the end of the day? 

I know Congress used to have a program something like that and 

they had to completely eliminate their overdraft protection because 

it was so badly abused. Does anybody in the marketplace want to 

weigh in on that? 

Mr. STAATZ. We are concerned, Congressman, that there would 

be abuse and that abuse would be even higher than some of it is 

today, and the number of overdrafts would increase. And we really 

don’t want that to happen. 

Mr. POSEY. We haven’t heard today about the loss ratio either 

when they do an overdraft protection or an overdraft notice. How 

often is that money ultimately recovered? Does anybody know that, 

or are there some loses that are sustained, that are not repaid, that 

go into that $35 fee? 

Mr. STAATZ. Absolutely, yes. I don’t have the numbers for you, 

we could probably get that, but some of those are fairly substantial, 

depending on the institution. 

Mr. DOLLAR. Congressman, most of the credit unions that I work 

with reserve 6 to 7, perhaps at much as 8 percent, of the total 

amount for potential losses. 

Mr. POSEY. I think, as the lady pointed out before, the processing 

fee probably should be quantified generally. And I think these 

things need to be quantified, too, to give us a full picture of what 

all is involved in this. It is not just taking $35 and it is all 100 

percent pure bottom-line profit. That is the feeling you get when 

you hear one side of the equation, until you hear the other side of 

the equation. It doesn’t seem to focus as much in the middle. 

I would like in the future when we have these discussions, if we 

could just get more information like that. 

Mrs. MALONEY. The gentleman’s time has expired. But I would 

like to note in Mr. Blaine’s testimony earlier, he said his institution 

33 

charges $12 for nonsufficient funds and 50 cents for a transfer from 

another account, which is the equivalent of an overdraft. 

The Chair recognizes Mr. Green for 5 minutes. 

Mr. GREEN. Thank you, Madam Chairwoman. I thank the witnesses for appearing today. And Mr. Blaine, I must tell you that 

you have completely destroyed my line of questioning. 

Mr. BLAINE. Is that good or bad? 

Mr. GREEN. I am concerned about you, Mr. Blaine. You used 

terms that we don’t hear a lot of from people in your industry; ‘‘fair 

choice,’’ you used the term ‘‘socially conscious,’’ ‘‘socially responsible.’’ You indicate that credit unions ought to wear white hats. 

And then you conclude with ‘‘do the right thing.’’ 

I will tell you that I read it, I heard it, and I was impressed that 

someone who is so closely aligned with the industry would use this 

type of terminology. And I am impressed because I think the American public is currently concerned about what they perceive banking to be all about. I think that the American public is of the opinion that banks don’t have a social conscience, that they are not fair, 

that they are not being responsible at a time when responsibility 

would be helpful to the public. And I think that they don’t believe 

and perceive banks to be the wearers of whites hats. 

Having said that, I will tell you that I don’t find overdraft fees, 

per se, invidious. I think that there may be a means by which they 

can be utilized and I think that is what we are trying to do today, 

to ascertain how we do this fairly. And so your testimony was a little bit unusual, given your line of work and given that I rarely hear 

it here at Congress. And so I thank you for your testimony. It 

meant something to me personally. 

I think that this notion that when you do a person a favor and 

you charge a fee, and then you want to appear to be the Good Samaritan is a bit much. The Good Samaritan did not charge when 

he stepped across the street to help the person who had been beset 

upon by culprits. 

It is a rare thing for me to accept the notion that you do me a 

favor. I come up to the gas pump and you say, let me pump your 

gas—this happens to all of us I am sure—and once you pump my 

gas, you say, by the way, that will be $5, but you were doing me 

a favor. And the question becomes, if you are going to do me this 

favor and appreciate overdraft protection, I have overdraft protection, can you at least give me notice that you are about to accord 

me a favor? That doesn’t seem unreasonable, to tell me that you 

are about to do a favor that is going to cost me, by the way. It just 

seems fair. 

I can use my credit card almost anywhere in the world. And to 

say to me that you can’t tell me that when I’m about to go into 

overdraft, because it is not an electronic device that your company 

placed in the marketplace, if that device cannot say to me, by way 

of written word electronically that I am about to go into overdraft— 

as a matter of fact, it can even talk to me. We have the technology 

for it to literally say, ‘‘Al, you are about to go into overdraft.’’ That 

technology exists. The question is: Do we want to spend the money 

on it? And I understand that can be expensive. 

But let’s talk about a much more empirical experience that I 

have had, because I think that intent is measured by your overt 

34 

manifestations, so I am still talking about notice. I want to tell you 

about a personal experience with notice. I went to the bank and 

handed a check to the teller. Yes, the check went into overdraft; 

thank God I had the protection on my credit line. But the teller 

never said to me, ‘‘You are a few dollars over with the check, do 

you want this to go into overdraft and do you want to pay this fee, 

which will be more than your actual amount that we are depositing 

into your account?’’ Now that kind of notice I just believe a bank 

can give. 

I am not going to say the name of the bank, but this is an actual 

experience. When the teller would not bother to tell the person who 

is standing right there in the presence of the teller, you have 

gone—this will take you into overdraft. It just seems fair to borrow 

Mr. Blaine’s terminology to say to people we are about to do this. 

The technology exists. I think it can be done. 

May I get 1 additional minute, Madam Chairwoman? 

Mrs. MALONEY. The gentleman’s time has expired. I will grant 

an additional minute for the panel to respond to your question of 

why they are not providing that service. 

Mr. GREEN. May I pose the question? 

Mrs. MALONEY. Sure. 

Mr. GREEN. The question is just one of the fairness issue that 

Mr. Blaine has raised. Is it fair to tell people that you are about 

to charge an overdraft fee? And I will just start with Ms. Fox and 

you can go right down the line and be as terse and laconic as possible. 

Ms. FOX. Absolutely. 

Ms. FEDDIS. Yes. 

Mr. HALPERIN. Yes. 

Mr. STAATZ. Yes. 

Mr. IRELAND. Yes. 

Mr. BLAINE. To have a fee market, you must have a free and 

fair— 

Mr. GREEN. Mr. Ireland, could your just speak a little louder? 

Mr. IRELAND. Yes. 

Mr. GREEN. Okay, thank you. 

Mr. BLAINE. To have a free market, it must be free and fair. You 

can’t have one without the other. 

Mr. GREEN. I take it that is a ‘‘yes?’’ 

Mr. DOLLAR. Disclosure is the key, yes. 

Ms. BLOOM. Yes, absolutely. 

Mr. COLLEY. Yes, sir. And if you were a member of my credit 

union and did that, we would tell you that it was going to cause 

you an overdraft. 

Mr. HUNT. Yes, sir, we concur. 

Mr. MENZIES. Yes, sir, our members know what our fees are. 

Mr. GREEN. Thank you, Madam Chairwoman. 

Mrs. MALONEY. Mr. Royce is recognized for 5 minutes. 

Mr. ROYCE. Madam Chairwoman, I would like to yield to the 

gentleman from Alabama for a question. 

Mr. BACHUS. I thank Mr. Royce. I wish I could submit a question 

you all would have said yes to. You were talking about overdraft 

privileges. It suddenly occurred to me that I think that is what the 

Federal Reserve Board and the Treasury have given to the ‘‘too-bigVerDate Nov 24 2008 16:53 Apr 22, 2010 Jkt 055815 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 K:\DOCS\55815.TXT TERRIE
35 

to-fail’’ banks. That is one overdraft privilege I wish they had not 

given. And it is the taxpayers who pay for that when they overdraft. 

My first question maybe sounds like a legal question, but I do 

think it has some ramifications. I will ask Mr. Ireland, and then 

if any of you want to comment. But this is a legal question, it is 

not a policy question of what it should be. Is an overdraft charge 

a loan or a penalty? 

Now, let me tell you why I am asking that question. Truth in 

Lending covers loans, the Truth in Savings Act covers penalties. So 

it makes a difference. 

Mr. IRELAND. Under the Truth in Lending Act, an overdraft fee, 

as it is implemented by every banking institution I have seen, is 

not considered credit under Truth in Lending. 

Mr. BACHUS. So it is not considered a loan? 

Mr. IRELAND. It is not considered a loan under Truth in Lending. 

Mr. BACHUS. Is it considered a penalty under Truth in Saving. 

Mr. IRELAND. It would be a fee under Truth in Saving. It would 

be required to be disclosed under Truth in Savings. 

Mr. BACHUS. As a fee in the nature of a penalty, I guess. 

Mr. IRELAND. I don’t know that they have a separate classification for fees that are penalties. 

Mr. BACHUS. Ms. Feddis? 

Ms. FEDDIS. Well, what they do, Regulation DD as of January 1st 

will require in every statement for NSF and overdraft fees to be 

disclosed, some for the month, and then total for the year in every 

periodic statement. So they will be segregated, but they are not 

identified necessarily as a penalty. They are identified as overdraft. 

Mr. HALPERIN. Mr. Bachus, if I can provide some clarity to Mr. 

Ireland’s statement, the banking regulators have said clearly that 

when an overdraft is paid, credit is extended. But they said it isn’t 

a finance charge under the Truth in Lending Act because of various 

restrictions. So it has been called credit, but not a finance charge, 

which means it is not credit under the Truth in Lending Act, as 

Mr. Ireland said. 

Mr. BACHUS. So it is sort of an in-between type. 

Mr. IRELAND. They have called it credit for the purpose of the 

credit discrimination laws. 

Mr. BACHUS. All right. Let me say this. One of the problems that 

I am having, and I don’t speak for anyone else, is there seems to 

be some confusion on the part of the industry on what happens 

today and what your capacity is, whether or not you can tell people 

at the point of sale. And is may depend on the agencies. But I 

think that is a problem that we are having. 

Ms. FEDDIS. Congressman, there is a distinction between opting 

out as a general opt-out, telling the bank, I don’t want you to pay 

any of my overdrafts. There is another distinction between declining a debit card transaction at a point of sale, just straight-line decline, yes, no. And then there is a third option, which is at the 

point of sale, to say proceeding with this transaction will cause an 

overdraft; would you like to proceed? And I think that is what you 

are talking about. 

36 

GAO has looked at this in a study that came out, and it has been 

suggested. Technically, you can do it, I suppose you can do anything, but it would be a huge cost. Every point of sale— 

Mr. BACHUS. Well, yes. I think there is a difference in it being 

a cost and it not being possible. 

Ms. FEDDIS. The New York subway is a lovely system and everything, but if you are— 

Mr. BACHUS. I understand. Because of our—and this is, obviously, as all you on the panel know, we lack the expertise that you 

have. 

Ms. FEDDIS. I would never say that. 

Mr. BACHUS. Well, I can. It is true. Let me say this, when we 

passed the credit card bill, some of us knew there would be some 

consequences, that in a few months, people would get notices that 

their interest rates are going up or their credit limit is going down. 

And it is a good thing in some respects. It stops some practices that 

probably should have been stopped. 

But there is always a negative. And I will tell you this when, let 

me close with this. There is going to be—and the consumer groups 

and I am convinced you have the public interest at heart. And I 

do believe the banks and the credit unions—the banks are different 

from the credit union; there are for-profit institutions. So I think 

there is a difference, although some of the credit unions do make 

quite a good profit. 

But no matter whether you are a consumer group or a financial 

institution, I can tell you that having overdraft privileges, not having them and bouncing a check is infinitely a worse consequence 

that I am not sure that most people appreciate. For people who 

have money, it is an embarrassment, and it has negative consequences. But for people who are short on cash, it can land them 

in jail. 

Mrs. MALONEY. The gentleman’s time has expired. 

Mr. BACHUS. Let me just have an additional 30 seconds with 

unanimous consent. 

Mrs. MALONEY. You have taken over a minute-and-a-half. And so 

I grant you another 30 seconds. That is now 2 minutes over. 

Mr. BACHUS. Let me just say—you issue a worthless check, you 

get a warrant issued against you. It goes on your record. There are 

some pretty severe ramifications. And I am not sure that the general public realizes that because they have had overdraft privileges. 

I am not saying that it was very costly—it encouraged a lot of— 

that it was to their benefit but to issue worthless checks has terrible ramifications. 

Mrs. MALONEY. The gentleman’s time has expired. 

And certainly the intent of the legislation is not to take away any 

services from consumers but allowing them to decide which services they want. For example, there could be alternatives, such as 

a line of credit. Some people may decide that they would like the 

overdraft protection, but others do not. 

I would say that one of my bills, which was very hotly contested 

by the industry at one point, was merely a notice at ATM machines 

that there was going to be a charge, $1.50 charge or whatever the 

charge was, so that consumers would opt-in and say, yes, I want 

that service. And it now is the law, and at every ATM machine, 

37 

they let the consumer know that they will be charged for the service if it is not their home bank. I very gladly pay this fee when I 

am in Washington so that I can access my bank. 

We are just saying, for the services that you provide, let the consumers know and let them decide whether or not they want the 

service. And if they want to pay $35 for every overdraft, then let 

them opt-into the program for the service. 

Mr. Cleaver is recognized for 5 minutes. 

Mr. CLEAVER. Thank you, Madam Chairwoman. 

Let me just start off with this. Will all of you who support this 

legislation just raise your hands? Okay. Let me just, before 

Thanksgiving, express appreciation to all of you who oppose the 

legislation. Those who oppose the legislation are really helping me, 

and I appreciate it. 

The banks right now are preventing the Nation’s ire from falling 

on Members of Congress. I think as long as you can continue to do 

this, it helps us. Thank you. You successfully bypassed us as the 

most hated group in America, and I think that just personally, I 

want to express appreciation. 

Do those of you who oppose the legislation believe that what is 

going on, what the overdraft policy is, is the morally right thing to 

do? 

Excuse me? 

Mr. MENZIES. Could you restate your question? Did you ask, Congressman, if we believe that it is immoral to offer overdraft protection services to our customers? 

Mr. CLEAVER. Yes, I guess you can rephrase it that way. 

Mr. MENZIES. I would respond to you that it is not only not immoral; it is fair, reasonable, responsible relationship customer-driven, based on taking risks with people whom we know and we live 

with and we see in our bank every single day. 

Mr. HUNT. And I do believe it is the right thing to do, to do everything we can to make sure a person is able to pay their house 

note, to pay their car note, to purchase food at Burger King using 

a debit card. 

Mr. CLEAVER. So you are able in realtime to tell a person whether or not he or she has money in the bank and give them the opportunity to withdraw their transaction, but you don’t do it because 

you make money, and that is the right thing to do? 

Mr. HUNT. That is not—being able to tell someone’s balance in 

realtime is not entirely correct. There is only one person who 

knows how much money you have in your account, how many 

checks you have written, how many items you have actually purchased. Just because a person is authorized to purchase an item, 

it doesn’t mean they actually purchased it. And we try and provide 

technology so you have the right information, possibly on your 

Blackberry right now, you can find out your account balance. 

Mr. CLEAVER. So when someone uses a debit card at Macy’s, and 

Macy’s runs the check through the machine, you are saying that 

the machine cannot tell Macy’s whether or not the person seeking 

the transaction does in fact have money in the bank? 

Mr. HUNT. What that machine would tell the merchant is that 

this person is authorized to make a transaction. 

Mr. CLEAVER. That is not what—no. 

38 

Mr. HUNT. The answer to your question is ‘‘no.’’ 

Mr. CLEAVER. No, you didn’t. You answered somebody else’s 

question because the question I am asking is—the bank has the 

ability in realtime to say whether or not there is money in the 

bank, right? 

Mr. HUNT. The bank has the ability with—if the merchant has 

the technology—that is another thing we haven’t discussed. We 

don’t know if the merchant has the technology. It is not a one— 

Mr. CLEAVER. I know you think you are answering my question, 

and I don’t like to— 

Mr. HUNT. I am just trying to answer. 

Mr. CLEAVER. And you are a nice person. What I am saying is, 

you are not answering the question. Let me just—if I am walking 

into Macy’s and write a check, and they run it through the machine, will the merchant see that I have money to make the purchase? 

Mr. HUNT. Not at all times, no, sir. They don’t. Sorry. 

Mr. CLEAVER. What do they see? 

Mr. HUNT. They run the debit card through their machine. 

Mr. CLEAVER. What do they see? 

Mr. HUNT. They don’t see anything. They just look at the cash 

register and see if you are approved or not approved for this transaction. They don’t see that you have $123. 

Mr. CLEAVER. No. Okay. But what does the bank see? 

Mr. HUNT. The bank sees a request from the merchant for a certain amount of money. The bank has already basically predetermined whether you are going to be eligible to make a purchase or 

not. 

Mr. CLEAVER. So the bank doesn’t pay any attention to what 

your balance is? They make a predetermination that whatever 

comes through here, we are going to pay? 

Mr. HUNT. Here is what the bank has done. The bank has looked 

at your history. They have looked when you are going to get paid 

again, and they are going to see if you are a good customer of the 

bank. And if they have seen, sir— 

Mr. CLEAVER. In a matter of 5 or 10 seconds, the bank is going 

to look at your history, look at whether you treat your dogs nicely? 

All of this? 

Mr. HUNT. We do that every day, sir, every day. 

Mr. CLEAVER. In 5 seconds? 

Mr. HUNT. Sir, they do it all the time based upon your records. 

Mr. CLEAVER. I would love to take some cameras from news 

agencies, go in the bank with you, and see that happen. 

Mr. HUNT. Sir, we would love to host you in your district to show 

you what a bank goes through every day. 

Mr. CLEAVER. Would you host me and some national television 

cameras to come in the bank and do that? I think we can solve this 

problem and kill Mrs. Maloney’s bill. All we have to do—let me 

have somebody in Macy’s. I am with you and the cameras and we 

are on TV right now—we have a chance right now to fix this deal. 

We are going to fix it. Do we have an agreement? 

Mr. HUNT. Oh, yes, sir, we have an agreement. 

Mr. CLEAVER. We have an agreement. I am through—I am going 

to work this out. 

39 

Mrs. MALONEY. Mr. Perlmutter is recognized for 5 minutes. 

Mr. PERLMUTTER. I am not sure how to follow that. I think—and 

I agree with Mr. Posey. I just appreciate the panel’s testimony 

today. 

There have been different opinions, some very strong terminology, strong feelings, strong ideas. 

And the underpinnings of all of this are, allow business to engage 

in commerce, expect people to act as adults and have personal responsibility. 

But then within the Constitution, we understand there are limits 

to that, and we have the bankruptcy section of the powers given 

to the Congress, and we have no involuntary servitude. So there is 

an understanding by the Founding Fathers and Mothers that people can overdo it, too, that they don’t—they are not going to become 

indentured servants. 

So what we have here is really a benefit, and Mr. Bachus and 

I were talking about it, which is to cover overdrafts so that people 

don’t get bounced checks, don’t get treble damages, don’t get potential warrants, don’t get denied in bankruptcy to try to get rid of 

that particular debt. 

But on the other hand, these things get to be very seductive and 

can really run up—Ms. Bloom, I think you gave some anecdotes. 

And Mr. Hunt, I know you objected to anecdotes. 

The trouble is, Mr. Bachus says we may not have much expertise, but I can tell you we have a lot of experience. And my experience with my daughters—I have my nephew here today. Now, 

thank goodness, he can do a little better than at least one of my 

daughters has done. But the anecdotes there are a $6.50 cup of coffee at Starbuck’s. She had $4.50, apparently, in her account; $2 

overdraft, $35 charge. And if it had only happened a few times, 

that would be great. So we said, no more of this; you have to be 

on a cash and carry. 

My youngest daughter, she is cash and carry. It has been very 

successful for her. My middle one, though, we went back and said, 

can we get a line of credit for $1,000 so that this doesn’t happen? 

They said, no, she doesn’t qualify for a $1,000 line of credit, but 

we will give her an $8,000 credit card. Okay? 

So we have to watch the practices here. And I guess my question 

really does come back to point of sale, because it seems to me that 

debit cards really are becoming the convenience, but people are 

paying for that convenience. What started out as a courtesy becomes a profit center. And this happens in all kinds of businesses, 

not just banking. But we have to watch so that the Abby 

Perlmutters of the world aren’t always paying that $35 fee and can 

never catch up. 

So, Ms. Feddis, I appreciated your testimony. I think really Mr. 

Cleaver’s questions about, can we address this—let us say, in my 

family, we say, no, if you don’t have any money, boom, that debit 

card, it just stops; you are going to be embarrassed. Or at that 

point of sale, yes, you are going to overdraw, and you are going to 

pay a fee; do you really want to do that? I want to know, do we 

have the capacity? Is the technology there to do that? 

Ms. FEDDIS. Certainly, the capacity to opt-in when you open the 

account or at some point, that is certainly something that is doable. 

40 

With regard to giving somebody the option at the point of sale, that 

technology, as the GAO found as a practical matter, isn’t really 

available. It would require upgrading or replacing every point at 

the millions of point of sale terminals. It would require going into 

the networks and creating extra tracks. I am not an operations person, but you would have to do something to be able to carry—to 

have the capacity to carry that extra information. 

In your case, it is probably just better if that person opts out and 

says, I don’t want to ever have my debit card turned down. To the 

degree the bank knows that there are insufficient funds, even with 

debit cards, it is not a realtime situation. There will still be debit 

card transactions that will overdraw the account that the bank 

can’t stop. 

Part of that is the exact sort of transaction you are talking about. 

Small dollar transactions, a lot of times the merchants, to save 

time and money, they swipe the card to ensure that it is a good 

card, but they don’t actually take that extra step to ensure—to get 

an authorization from the bank, and the bank doesn’t learn that 

you have drunk that coffee until the next day. And as a practical 

matter, they can’t return it at that time. 

So those—but you could still—the bank could say, no, to the degree we stop them, and we just won’t charge you, that is probably 

what your daughter should do, is just opt-out of the whole thing. 

Doing it each transaction is probably as a practical matter just not 

doable. GAO did look into that. 

Mrs. MALONEY. The gentleman’s time has expired. 

And within the bill, there is another study required to look at 

point of sale and how the technology is progressing to allow us to 

do that. At one point, they did not have the point of notification 

on the ATM machines. Of course, now, they do. So we will look at 

it and go forward. Mr. Royce is recognized for 5 minutes. 

Mr. ROYCE. Yes, thank you, Madam Chairwoman. 

I would like to go to Mr. Dollar because he is the former chairman of the National Credit Union Administration. So he would 

know something about how regulators look at this situation of having customers who routinely commit over—who are basically underwater or creating risk. If it is the case that the regulator forces 

the institutions to set aside 60 percent in these cases to handle 

those accounts, to handle individuals with this proclivity to overdraft their accounts, wouldn’t that imply that there is some risk involved for the institution? 

Mr. DOLLAR. There is no question, Congressman, that there is 

risk. And that is the reason why the regulators allow the institutions to be able to not only charge the fee, but require them to reserve 6, 7—not 60, but 6, 7 or 8 percent, somewhere— 

Mr. ROYCE. So it is 6, 7 or 8 percent. 

Mr. DOLLAR. On average, some as little as 5 percent. Perhaps 

some as much as 10 percent. But, yes, there is risk there in answer 

to your question. And that is why the regulators do require that. 

And as I said in my testimony, perhaps it is because I am a former 

regulator, but I believe that the best arena to deal with abuse in 

this issue is through the regulatory arena, rather than statutorily. 

I think that it is able to reflect—the regulations are able to reflect 

the changes in the marketplace, the changes in technology, the 

41 

changes in just the consumer perceptions of these issues as they 

move forward. I think the Federal Reserve and the Federal Financial Institutions Examination Council have taken the lead on this. 

They are taking it seriously, and I think that their new rules and 

guidelines, their regulatory requirements should be allowed to 

work. 

Mr. ROYCE. I guess the question—if the credit union is only going 

to be able to pass on the cost of processing the transaction and if 

you have an 8 percent cost in terms of the risk, why would they 

ever offer the overdraft protection? Because they would be bearing 

the risk that a customer will not settle their balance, basically 8 

percent of the time on average, and they can’t be compensated for 

assuming that risk. So they would be better served by ending the 

overdraft protection under that scenario. 

Mr. DOLLAR. I think that for many of those members who were 

mostly to take a loss, they would simply close their accounts. So 

there would be a ramification for them. 

But another point here quickly on bringing this under Truth in 

Lending that has not been discussed today is that federally chartered credit unions have a statutory, again, a problem of the statutory requirement, rather than leaving it regulatory, have a statutory 18 percent usury cap. Therefore, if you were to place overdraft 

protection under Truth in Lending, every Federal credit union in 

the United States of America would not be able to approve 6 per 

year as the law indicates. When they approved the first one, they 

would be in violation of the Federal usury laws. So there are unintended consequences that I think have to be taken into consideration with this legislation. 

Ms. FOX. Mr. Royce, may I add to that? 

This bill specifically excludes the credit union usury cap for coverage under this bill. The bill requires the Federal Reserve to take 

into consideration what it costs for a financial institution to pay an 

overdraft when they set the guidelines for what is a reasonable fee. 

Mr. ROYCE. Right. And I am looking at the risk element of this, 

and I am wondering, at the end of the day, why would banks and 

why would credit unions really continue to offer these programs if 

on the risk side, you are not able to be compensated for assuming 

that risk? And I guess the thought I have in this is, what is likely 

downstream? If you do have that action out of banks, credit unions, 

then the loser is going to be the type of individual who would most 

be likely to utilize routinely overdraft protection; who would be the 

type of individual who might not notice the accelerator clause in 

his mortgage, and suddenly he doesn’t have that overdraft protection anymore, and now he has been late on his mortgage check, or 

he is the type of individual who is going to end up being dinged 

not by only the merchant and the bank but, in the most egregious 

cases, by the district attorney as well. He is going to have all of 

these charges to bear because we have created a scenario where 

the banks and the credit unions are not going to offer the overdraft 

protection or are going to close the account. 

Mr. Dollar? 

Mr. DOLLAR. The regulators see the benefit. They also see the 

risk. That is why they are regulating it. They are regulating it, I 

think, very well. There is certainly some additional scrutiny that 

42 

should come. We have discussed some of those aberrations here. 

They are, however, the exception rather than the rule. But there 

is risk. There is moral hazard in not finding a way to discourage 

the writing of bad checks, and there are the additional costs that 

you have mentioned, Congressman, that are very real. 

And that is the reason why there is some disconnect when folks 

say that consumers do not like this product, but yet the financial 

institutions are making a lot of money on it. Some way or another, 

there must be some consumers seeing some value in this product 

or else they would not be the earnings that there is. The answer, 

again, is disclosure and making sure those members know, through 

financial education and through proper disclosure, how this program works and have the right to opt-out of it if they do not agree. 

Mr. ROYCE. Thank you, Madam Chairwoman. 

Mrs. MALONEY. Mr. Himes, for 5 minutes. 

Mr. HIMES. Thank you, Madam Chairwoman. I want to follow up 

on something Congressman Perlmutter said, the sort of concept of 

the profit center. I think we have four CEOs, presidents of banks 

and credit unions. Could I ask you each to quickly give me a sense 

for what the profitability of the overdraft business in fact is? And 

I am happy to take an answer in terms of return on invested capital or margin or whatever makes sense. I am also happy to take 

an estimate. Can we just start with Mr. Staatz, I guess? 

Mr. STAATZ. I don’t have those numbers with me here today, but 

a part of our—in our charge is not to cover costs; it is also somewhat of a penalty to try to discourage people from using it. 

Mr. HIMES. Mr. Blaine? 

Mr. BLAINE. Congressman, the profits are obscene. And I will 

give you an example. If these fees were correctly disclosed under 

Truth in Lending, everybody agrees that their interest rate would 

be at about 300 percent. Even with a 10 percent write-off, as Mr. 

Dollar just mentioned, the return to the banks and credit unions 

is 270 percent. This is a no-lose proposition for the banks; a definite loss for consumers. 

Mr. HIMES. Mr. Colley, do you have a margin or return on investment capital number for me? 

Mr. COLLEY. I don’t have that information with me, sir. I would 

be happy to get it to you later. 

Mr. HIMES. Thank you. 

Mr. Menzies? 

Mr. MENZIES. Congressman, we measure profit based on return 

of total relationship, not just of the payor overdraft protection programs, the total relationship. All loans, all deposits, the total relationship. 

Mr. HIMES. But surely you break these businesses out, you need 

to be able to evaluate their relative profitability. You break them 

out, no? 

Mr. MENZIES. I hate to admit, at a $150 million bank, we don’t 

run ROE, ROA returns on specific products. I am sure we should, 

but we don’t. We look at the relationship, the total profitability of 

the relationship. 

Mr. HIMES. I am really not trying to make a point here. I was 

just curious about the profitability. I think if the four of you would 

be willing to follow up with just your best estimate of how profitVerDate Nov 24 2008 16:53 Apr 22, 2010 Jkt 055815 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 K:\DOCS\55815.TXT TERRIE
43 

able a business this is within your institutions, it would be, I think, 

very helpful to us. 

Look, philosophically, I tend to believe that if you have good disclosure and smart choices being made, that we should be very 

light-handed with respect to what products are offered. This is a 

special case, though, because it represents a moment in which a 

household or an individual transitions from having assets to having 

liabilities. And we had a pretty unenlightening discussion down 

here and in the media about what caused the meltdown we are in 

right now. 

Everybody blames it on CRAs, Fannie Mae, or the investment 

banks. And there is a grain of truth in much of that. And the reality is, of course, we have all sorts of factors. What we don’t talk 

nearly enough about is the incredible increase in leverage in the 

American household. You know the numbers. The last 20 years, 

most households moving from net asset positions to very substantial leverage. And that makes all the difference as we go into one 

of these things. 

And again, I appreciate that if you have—Mr. Dollar, you say if 

you have good disclosure and good decisionmaking and conscious 

decision making in the face of perfect information, fine. But here 

is the moment where somebody’s account goes below zero, and they 

are now going into debt. So I think we have a public interest, given 

how important the leveraging of the American household, the irresponsible behavior—I am not blaming you—the irresponsible behavior of many American households in accumulating a lot of debt, 

using homes as ATM machines, etc. 

These products can facilitate that. And so despite my philosophical leanings, I do want to look hard here. And my question 

is, why not an opt-in? Let us give everybody perfect information 

and let them make an affirmative choice, and if they have gotten 

that information, good disclosure, make an affirmative choice. I 

don’t get the opposition to that because opt-out we all know. We 

all live enormously busy lives. We all know that moment very rarely presents itself where you say, from 10:30 to 11:00, today, I will 

read my agreement with my bank, and I will make an affirmative 

choice. That just doesn’t happen. Why the opposition to opt-in? 

Mr. STAATZ. Congressman, we don’t have opposition to opt-in. 

Certainly on a go-forward basis. As a matter of fact, it would merely put into place what most credit unions do anyway. 

Mr. HIMES. Does anybody oppose opt-in? I saw in the testimony 

here. 

Mr. DOLLAR. Congressman, I contacted and have over the last 

several months when all this publicity came, about a number of the 

credit unions that I work with, and there is not a credit union that 

I had spoken with that has a problem with opt-in going forward 

and a very well disclosed opt-out option for existing accounts. I 

think that opt-in going forward would be very well received by responsible financial institutions. 

Mr. BLAINE. Congressman, our organization manages 800,000 

checking accounts for individuals. We offer only opt-in. We have for 

over 25 years; 80 percent of our members are covered by overdraft 

by their choice. They are allowed to use their other savings, other 

checking, money markets, CDs, credit card, line of credit, whatever. 

44 

Every one of those choices is wildly less expensive than overdraft 

that is being proposed. And the only people that we cannot qualify 

for reasonable overdraft protection are those who are not credit 

worthy. And those are the people who are most often taken advantage of by courtesy pay. 

Mrs. MALONEY. The gentleman’s time has expired. 

Some members have asked for a second round, so I am recognizing myself for 5 minutes. 

And I would like to ask Jim Blaine—I am really struck and fascinated by your fee structure for your credit union. In your testimony, you note that you charge 50 cents to transfer funds for overdraft protection. And in the Overdraft Protection Act, there is language that says that financial institutions can only charge fees that 

are reasonable and proportional to the cost of processing the transaction; 50 cents seems to me to be very reasonable compared to a 

$35 fee that many financial institutions charge for the same service. Can you tell us how your credit union arrived at the 50 cent 

figure? 

Mr. BLAINE. Madam Chairwoman, it is a sophisticated process 

that we employ. Actually, it is a nuisance fee. We would rather 

that our members do it for free by going online, so we have very 

conservative, careful members, and believe it or not, many of them 

will do it themselves to avoid that 50 cent fee. But in an automated 

world, the incremental cost of doing those transfers is a matter of 

pennies. It covers our costs easily. 

Mrs. MALONEY. Well, thank you. Then the difference between a 50 cent fee and a $35 fee is obviously very, very striking. So why do you think there is such a huge 

difference between the credit union practice and one that serves its 

customers very well—you said you had 800,000 customers you said 

or 800,000 customers—and the practice of larger banks to charge 

an average of $35 fees? 

Why do you think there is such a large discrepancy, Mr. Blaine? 

Mr. BLAINE. Madam Chairwoman, I believe that is why we are 

here today. 

Mrs. MALONEY. That is why we are here today. 

Mr. BLAINE. But I would say, going back to a previous question, 

if they offered courtesy overdraft at Burger King, I think the question would be, where is the beef? 

Mrs. MALONEY. Okay. I would like maybe Ms. Feddis to answer 

or Ms. Fox. 

Ms. FEDDIS. I think I might be confused. The 50 cent fee isn’t for 

the overdraft. Is that correct? Or is it for transferring money from 

a savings account, which is very different? Many banks do that for 

free. Usually, it is $5 or $10. You can pay somebody to make your 

coffee, or you can make your coffee yourself. So with the banks in 

terms of transferring funds from the savings account to the checking account, sometimes that is for free in some banks; sometimes 

it is $5 or $10. 

Mr. BLAINE. Madam Chairwoman, Ms. Feddis has caught me. 

The 50 cents is a transaction fee. The cost of the overdraft is zero. 

Mrs. MALONEY. The cost of the overdraft is zero. Okay. It is a 

transaction fee. The cost of the overdraft is zero. So there is a big 

difference between a zero and a $35 fee. 

45 

Ms. Fox, would you like to comment on it? Or Mr. Staatz and 

others? 

Ms. FOX. The larger banks charge $10 to transfer your own 

money from your savings account into your checking account to 

cover an overdraft and if I recall correctly, your bill would have the 

Federal Reserve look at whether that fee is also reasonable and 

proportional because that makes even covering your overdraft with 

your own money still a fairly expensive transaction. 

Mrs. MALONEY. Mr. Staatz? 

Mr. STAATZ. I wanted to just clarify, for example, we don’t charge 

anything when you are transferring your own money. And as others—some of the credit unions—as Mr. Blaine does, may charge 50 

cents or a little bit more, but we don’t charge anything for your 

own money. 

Mrs. MALONEY. For your own money. 

Mr. Menzies or Mr. Hunt, would you like to— 

Mr. HUNT. Sure, I would, Madam Chairwoman. 

Mrs. MALONEY. Why is there such a large difference, a discrep- ancy between a 50 cent transfer, a $10 transfer, a $35 overdraft 

fee? 

Mr. HUNT. Sure, Madam Chairwoman. I will also tell you that 

I have never heard of any of our banks charging you money to 

transfer your own money from one account to another. I am a little 

bit confused by the gentleman to my right about whether that is 

a line-of-credit fee or a strict overdraft fee. Same thing here. If you 

do have a line of credit with one of our CBA bankers tied to your 

savings account, we charge a minimal fee of probably $3. Many of 

our banks charge zero if you have that line of credit. 

Mrs. MALONEY. Would you like to clarify for him, Mr. Blaine? 

Mr. BLAINE. I am not certain what the question is. The only overdraft or NSF fee we have is a $12 NSF fee that has been the same 

fee for over 20 years. And it is more than sufficient to cover not 

only our processing costs but all the fraud and other losses that are 

incurred in our 800,000 unit checking program. 

Mrs. MALONEY. There seems to be a huge discrepancy between 

some institutions and others. And I thank you very much for your 

service to your customers, Mr. Blaine. 

The Chair recognizes Mr. Green for 5 minutes. My time has expired. Excuse me. Mr. Posey. 

Mr. POSEY. Thank you, Madam Chairwoman. There is definitely 

some good stuff in this well-intentioned legislation that is being 

proposed and worthy of further consideration for sure. But some of 

this stuff that gives me reason for pause, for example, is, under 

Part J, a depository institution may charge not more than 1 overdraft coverage fee in any single calendar month and not more than 

6 overdraft coverage fees in any single calendar year per transaction account. You wonder what would happen then if somebody 

had 12 overdrafts in a year, 6 of them were free; would they take 

that maybe as an inference that they don’t need to pay it or they 

shouldn’t be responsible for it? 

And the question that begs for an answer is, who would, even if 

the fee was exactly matched to the loss and to the administrative 

cost, who would then pay for the abuse, the 6 abuses that were not 

allowed to be charged back to this customer? And I am afraid the 

46 

answer is the 99 percent of the customers who do not abuse the 

privilege of having a checking account. 

Stealing is still stealing. I hope Congress is not trying to change 

that fundamental right. When you tell somebody, you give me this 

and I will pay you for it, and if you don’t do it, that is called theft. 

If it happens at McDonald’s or Burger King or anywhere else, you 

make an obligation; there is a moral obligation, I think we all believe, to hold up your end of the bargain. 

And if I get you to loan me money and then say that I am going 

to pay you back and I don’t in fact do it; if I give you a bad check, 

that is stealing. And there have been penalties for that, I am sure, 

in every State and severe penalties where the amounts are severe. 

So I hope that Congress is not trying to and cannot minimize the 

necessity of having responsibility to pay your debts. 

And I hope that we are not trying to, by lowering the consequences in the interest of consumer protection, we are not trying 

to lower the consequences of bad behavior, which is what caused 

us to be in the major economic recession that we are in now. Sometimes, the cure is worse than a disease, and I wonder if some components here are not a cure in search of a disease. 

It is laudatory that Mr. Blaine has 80 percent of his customers 

signed up for overdraft protection. That leads me to suspect that 

most consumers enjoy knowing that if they should inadvertently— 

hopefully—make a mistake and can’t cover their last check, that 

there will be an opportunity for the institution to step up. I would 

be interested in knowing how often you have to exercise that overdraft protection. 

Mr. BLAINE. Congressman, I agree with you. 

The essence of our program is, it is an opt-in, and as you say, 

if you give the consumer a choice, they will make the right decision. But giving them the choice is very, very important. We have 

about 9,000 potential overdrafts every day. So it is a very, very 

large number, and if you would multiple that by $35, then you understand what is at risk in terms of income to institutions, why 

there is such a strong discussion. 

One other point, in terms of the number of once per month or 

6 per year, as I understand this legislation, you are trying to strike 

a balance between the number and the proportional fee, and the 

truth is somewhere in between. But you have to keep the two together when you do the legislation to make it more reasonable. 

Mr. HALPERIN. Congressman, if I could add, under the legislation, there is no requirement that institutions continue to cover any 

transactions after the sixth limit. So in response to your question 

about whether institutions would be forced to cover transactions 

without a fee, the legislation would allow institutions then to deny 

those transactions, which I think is a more effective deterrent and 

a more effective encouragement for personal responsibility, which 

you have called for today, than allowing transactions to go forward 

without a fee. 

The most effective deterrent is denying the transactions. And at 

six—under the current system, there seems to be a misunderstanding that the current system actually covers all payments. In 

fact, even under the current e-based overdraft system, people do 

get denied if they reach their maximum limit on a negative. For 

47 

example, some banks have a negative $500. And that could just as 

easily be your mortgage payment or your rent payment or that important thing, and you were driven down there by your small debit 

card. So we are not in a world now where everything gets paid. But 

just to be clear, the bill certainly does not require institutions to 

continue to pay and not charge a fee. 

Mr. BLAINE. Congressman, we very much support personal responsibility, too. We are all fully behind it. One of the innovations 

we are adding later next year is we all have mobile phones now, 

cell phones, smart phones, and we will actually text our members 

early in the morning. We process at night. And we know if there 

is a potential overdraft, and we will contact you if you are a member and say you need to come see us before 5:30 to give them a second chance because it is a very busy world, and most folks will do 

the right thing and come in and avoid those fees. If not, we have 

no compunction about punishing them severely. 

Mr. POSEY. Do you find competitors following your business 

model? 

Mrs. MALONEY. The gentleman’s time has expired, and he is 

granted an additional 30 seconds for Mr. Blaine to respond. 

Mr. BLAINE. I think banks and credit unions are good people, and 

they do want to serve their customers and members well, and as 

these technologies become available, they will try to help their customers and members. 

Mrs. MALONEY. Thank you very much. 

And Mr. Green is recognized for 5 minutes. 

Mr. GREEN. Thank you, Madam Chairwoman. 

I concur with Mr. Blaine. I think that banks and their employees 

are good people, and I sincerely do believe that you want to serve 

your customers well. 

I do note, however, that the interests and fees that were at one 

time charged on one check, as I understand it, perhaps one, and 

correct me if I am not correct, at one time you would pay not only 

the fee but the money that was placed in your account, you paid 

interest on that as well. Is this true? 

Ms. FOX. In the way the big bank fee-based overdraft works, if 

they permit an overdraft— 

Mr. GREEN. Excuse me. Let me intercede because time is of the 

essence. I believe Ms. Feddis broached the issue when she explained that the Fed no longer allows that. 

Is this true, Ms. Feddis? 

Ms. FEDDIS. No longer allows what, sir? 

Mr. GREEN. No longer allows a fee as well as interest on an overdraft. 

Ms. FEDDIS. I didn’t say that, sir. 

Mr. GREEN. You did not? What did you say? I am sorry then. 

Ms. FEDDIS. I have said a lot. I often repeat myself. 

Mr. GREEN. I know you did, but let us just focus on this one area. 

Ms. FEDDIS. Can you ask the question again? I am not sure what 

you are talking about. 

Mr. GREEN. Let me ask the question. If you have an overdraft and there is a fee paid, let us say $35, and ‘‘X’’ number of dollars 

are placed in the account, do you get interest on the ‘‘X’’ number 

of dollars as well as the $35 fee? 

48 

Ms. FEDDIS. Interest on the $35 fee. 

Mr. GREEN. The money that is placed into the account to cover 

the overdraft. 

Ms. FEDDIS. At that point, it would be just to bring the balance 

to zero. So there wouldn’t be any interest paid. 

Ms. FOX. No. It is just a fee. But a lot of the banks charge a second fee if you have not paid for the overdraft and the overdraft fee 

in 3 to 5 days. 

Mr. GREEN. Let us take this example. This will help. Let us as- sume that you—that $100 is required to go into your account to 

cover the overdraft amount. A fee of $35 is imposed. On that $100, 

do you pay interest? 

Ms. FOX. No. No, sir. 

Mr. GREEN. Did you ever pay interest? Did banks ever have the 

option of charging interest on the $100? 

Ms. FEDDIS. That is in the checking account? 

Ms. FOX. Only if they had an overdraft line of credit where they 

were charging interest on the amount that you borrowed. And typically banks charge about 18 percent annual interest if you cover an 

overdraft with a line of credit. 

Mr. GREEN. Ms. Feddis, you were about to— 

Ms. FEDDIS. I think we are getting there. The line of credit, if 

that is used to cover the overdraft, interest will be charged on that 

line of credit. If it is covered by an overdraft with an overdraft fee, 

there wouldn’t be interest charged. 

Mr. GREEN. And there has never been an instance or circumstance at any point when banks were charging both the fee and 

the interest? 

Ms. FEDDIS. Not that I am aware of, if I understand the question. 

Ms. FOX. There are a few banks that charge a transfer fee for 

you to access your line of credit, and in that case, you would pay 

a flat dollar fee plus the 18 percent interest. 

Mr. GREEN. So you pay the transfer fee? 

Ms. FOX. But it is not as big a fee. It is just a transfer fee. 

Ms. FEDDIS. That is also, again, the line of credit, not the overdraft. We are talking about two different products. 

Mr. GREEN. Right. If you have a line of credit, the line of credit 

charges you, and then you pay the overdraft fee as well. 

Ms. FOX. No. Transfer fee. 

Mr. GREEN. Transfer fee. How much is a transfer fee versus the 

overdraft fee? 

Ms. FOX. For the largest banks, transfer fees start around $10, 

and the overdraft fees are $35 for the initial overdraft; at some 

banks, $35 in another few days. 

Mr. GREEN. Mr. Blaine, if I may, you charge 50 cents for your 

transfer fee? 

Mr. BLAINE. That is correct. And to finish out your thought, it 

may go to our members’ Visa card with the credit union on which 

we charge 9.7 percent. So we do not charge an overdraft fee because we are charging interest on the line of credit. 

Mr. GREEN. Somebody else wants to speak. 

Mr. HUNT. We have to make this point very clear. If you have 

a line of credit, you do not pay an overdraft fee. That is why you 

have the line of credit. That is the beauty of a line of credit; there 

49 

is no overdraft fee. So some banks do charge anywhere from $3 to 

$10. 

Mr. GREEN. Can I just intercede? The lack of beauty is that you 

charge a transfer fee when you are charging me to take money out 

of one account that I have and place it in another account that I 

have. Do you find beauty in that as well? 

Mr. HUNT. I do in the fact that it is better than paying the $35 

fee in that we had to set that up for you and there was expenses 

behind the initial setup. 

Mr. GREEN. So you— 

Mr. HUNT. The beauty would be if you transferred money before 

you had an overdraft. That would be the beauty and there would 

be no charge for that. 

Mr. GREEN. That would be the beauty it of. But then if I am not 

aware, and I should be—I guess sometimes you don’t know when 

you need the help and you render the help. But— 

Mr. HUNT. And I have needed help before. 

Mr. GREEN. So have I. So have I. 

To close, let me share this with you. I don’t find overdraft fees 

to be repugnant, per se. My concern is that you don’t give the consumer the notice. I think notice is important to consumers, and if 

we can get the notice—notice—assuming that I am about to go into 

overdraft, if you can give me the notice at that point—remember 

the statement about being in a bank also with the electronic devices. We can give consumers notice so that they can opt-out at 

that point and say, well, look, I really don’t want to pay that overdraft fee at this point. I happen to have money in my pocket and 

I will cover it. There are all sorts of options available once you 

know what the consequences are. And I find that to be an acceptable solution. 

The final comment would be this. With reference to the manipulating of the order of the transactions, do you agree that it would 

be fair not to manipulate the order of transactions in an invidious 

way, such that people find themselves, if the order had been in a 

different fashion, wouldn’t pay as much? 

Mrs. MALONEY. The gentleman’s time has expired, but he is 

granted an additional 30 seconds for Ms. Fox to respond. 

Ms. FOX. Absolutely. Consumers think it is just outrageous for 

their banks to order withdrawals in a way that maximizes the 

number of fees. That is viewed as extremely unfair. 

Mrs. MALONEY. Thank you. The gentleman’s time has expired. 

Reverend Cleaver is recognized for 5 minutes. 

Mr. CLEAVER. Ms. Feddis, are you familiar with a recent article 

in USA Today by a consultant advisor to large banks on credit 

cards, Mr. Brad Nickum, N-i-c-k-u-m. He wrote an article, and he 

said, ‘‘profits, not costs generally drive bank fees.’’ Brad Nickum, 

consultant advisor to large banks on credit cards. 

Ms. FEDDIS. I would suggest that, for any business, costs and 

profits drive fees. The point of a business is in basic business theory that income has to be higher than expenses. 

Mr. CLEAVER. No. I am sorry. He is saying that profits from 

these fees, the profits from credit card—that—I am sorry—that 

banks charge on overdrafts is what drives— 

50 

Ms. FEDDIS. I am sorry. I misunderstood. The costs are certainly 

part of it. But part of the purpose of an overdraft fee is to serve 

as a penalty. And like any penalty fee, whether it is the IRS— 

Mr. CLEAVER. Penalty of what? 

Ms. FEDDIS. A penalty to encourage people, to get their attention 

and say, please, pay attention to your account. 

Mr. CLEAVER. What about slow learners? 

Ms. FEDDIS. That is a very good point. The vast majority of people manage their credit—their checking accounts very well. 

Mr. CLEAVER. I am sorry. Mr. Blaine, did you say 9,000? 

Mr. BLAINE. Per day. That is correct. 

Mr. CLEAVER. That is a lot of folks. That is $315,000 a year; $35 

per check would be— 

Ms. FEDDIS. I am just getting to the point that the group you are 

talking about, which is the vulnerable group—most people manage 

it well. 

Some people, as has been discussed today, are deliberately using 

the overdraft as their cash management, particularly small businesses because they can’t get a loan or they don’t want to get a 

loan. They are okay. There may be a vulnerable group. So, yes, we 

should protect them. But maybe we need to face the fact that some 

people maybe shouldn’t have a full-service standard checking account. Maybe they need something else that is more suited to 

them. 

Mr. CLEAVER. I agree with you. So why do you let them have the checking account and then charge them $35? 

Ms. FEDDIS. I think what you need is something like a payroll 

card which is very popular with people. The only deposit allowed 

into it is the payroll. They only access it through a debit card. It 

is overseen by the employer. It is very popular. 

Mr. CLEAVER. So it would work in realtime? 

Ms. FEDDIS. Well, there will be overdrafts. It won’t be for the 

reasons that I have discussed before. There can be because it is not 

possible for the bank to stop every overdraft, and it is not realtime, 

as you pointed out. 

Ms. FOX. Mr. Cleaver, when a bank decides to lend money to consumers by letting a debit purchase go through that should have 

been denied for lack of funds, the fee is not a deterrent; it is a profit center. If the bank wanted to deter overdrafts, they would prohibit a debit card from overdrawing at the point of sale or at the 

ATM machine. 

Mr. HALPERIN. Mr. Cleaver, if I can just add, we have that account, the account you are talking about. It was when the debit 

card didn’t allow you to overdraft. So instead of driving people out 

of the banking system by charging high overdraft fees, why don’t 

we bring back the debit card as the tool to only spend the money 

you have and give consumers the tool to be able to tell that debit 

card that it can’t be turned into a credit card? 

Ms. FEDDIS. But there are times when some people do want their 

debit cards—excuse me. 

Mr. CLEAVER. No hitting, no hitting. 

Ms. FEDDIS. It is okay. They do want their overdrafts paid. And 

give people the choice, as you point out, that, yes, in a perfect 

world, everybody would have enough money in their account, but 

51 

sometimes they don’t, and they need the medicine, or they want 

the groceries paid, or they want the meal that they just ate to be 

paid for. So give people the choice. And if there is another group 

that is a small group who is vulnerable, let us focus on them, but 

don’t deny everybody else the choice. 

Mr. CLEAVER. The choice to pay extra money? 

Ms. FEDDIS. If it is their choice. 

Mr. HUNT. To cover their bill, yes. 

Mr. BLAINE. Representative Cleaver, I hope you have at least 8 

spaces on your calculator, because 10,000 overdrafts times $35 is 

$350,000 a day. And that is just one of the advantages of participating in a credit union when you don’t have to pay those kinds 

of fees. 

Ms. BLOOM. If I might add, my experience with consumers is 

they get trapped in this cycle and that these—I mentioned some 

examples from stories we have heard, people just get into this cycle 

and it is 7, 8, 11 fees wrapped up within a 2-week period. So it is— 

and they don’t really know until it is too late. 

Mr. CLEAVER. I agree. Because it is similar to Johnnie’s Check 

Cashing Company on the street corner. 

Mrs. MALONEY. The gentleman’s time has expired. I will grant 

him another minute for his closing question. 

Mr. CLEAVER. Yes. What I think is difficult to explain is a report 

that appeared in a real estate group’s publication where a customer 

with a $500 balance made 4 debits in the following order: $15, $10, 

$150, and $450. Three overdraft fees could be charged instead of 

one by posting the largest transaction first, right? 

Mr. HUNT. Yes. 

Mr. CLEAVER. Why doesn’t that happen? 

Mr. HUNT. Sir, I will tell you this. Of all the issues discussed in 

this bill and in all the meetings I have had across the country, the 

most challenging question that I get from retail bankers, especially 

retail branch managers is, what do they post first? If they pay the 

highest amount, then they get criticized for charging overdraft on 

the three lower amounts. If they take care of the three lower 

amounts but don’t take care of the mortgage, they get criticized the 

same way. So it is a great question. No one has the solution to it. 

We do ask this of you, if this legislation is enacted, when you write 

the regulations, be crystal clear; what do you want the banks to do? 

Do you want the banks to go high-low or low-high? 

Mrs. MALONEY. Thank you. 

The gentleman’s time has expired. And the bill is crystal clear; 

it says that the order of checks cannot be manipulated in order to 

get a higher overdraft fee. So it goes with higher to lower. 

I would like to thank all of the witnesses. This has been incredibly interesting. 

Many members were not able to be here because there are not 

votes today. They are invited to submit their questions in writing. 

And without objection, we will have an additional 30 days for members to submit questions to the witnesses and to place their responses in the record. Thank you again. This meeting is adjourned. 

[Whereupon, at 12:33 p.m., the hearing was adjourned.] 

(53) 

A P P E N D I X 

October 30, 2009 

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