Overdraft Practices

2010 – Capital One Financial Corp.

 

 

WHEREAS: Overdraft fees are often charged when banks choose to pay a customer’s debit card, check, ATM or other electronic transaction, even though the customer’s account lacks sufficient funds to cover the charges.

 

According to consumer protection organizations, financial institutions are engaged in abusive practices that maximize banking overdraft fee revenue, charging exorbitant fees that bear no relationship to the cost of covering an overdraft and they automatically enroll customers in the most expensive overdraft option available without their consent.

 

With the acquisition of Chevy Chase Bank and addition of $13 billion associated deposits, our company is now the largest consumer and commercial banking institution in the United States.

 

Overdraft fees are not generally included in discussions of predatory lending, but a new report by the Center for Responsible Lending (CRL), states that over 50 million Americans overdrew their checking account at least once over a 12-month period, with 27 million accountholders incurring five or more overdraft or non-sufficient funds (NSF) fees.

 

A new survey by the Consumer Federation of America (CFA), states the nation's largest banks have increased the fee per overdraft occurrence and are more frequently charging additional fees if a customer’s account remains overdrawn for several days.

 

Overdraft fees are most typically triggered by debit card transactions and ATM withdrawals that could easily be denied for no fee. The FDIC found that nearly three-quarters of its banks’ service charge income was the result of overdraft and NSF fees.

 

Abusive overdraft charges target vulnerable customers: low-income, single, non-white, and renters; who repeatedly overdraw their account.

 

CRL has also found that approximately 80 percent of consumers would rather have their debit card transaction denied than have it covered for a fee, whether the transaction is for $5 or $40. 

 

Based on FDIC data, banks and credit unions collected nearly $24 billion in overdraft fees in 2008. Overdraft fee income for banks and credit unions rose 35 percent from 2006 to 2008.

 

In response to the harm to consumers caused by abusive overdraft programs, Senator Dodd and Congresswoman Maloney each have introduced legislation that would curb overdraft fees, signaling a growing discontent with the practice.

 

RESOLVED:  That the shareholders request the Board of Directors to complete a report to shareholders, prepared at reasonable cost and omitting proprietary information by November 2010, evaluating overdraft policies and practices and the impacts these practices have on borrowers.

 

Supporting Statement:

In 2009, regulators approved credit card reforms that will limit banks' ability to raise fees and interest rates and require greater disclosure about costs. Banks also will have to give customers the choice to opt into over-the-limit fees for credit cards. However, credit card laws do not address debit cards and other banking transactions. It is increasingly important that banks take proactive actions to address abusive overdraft charges that target vulnerable customers; especially in light of pending legislation.