Academic journal article ABA Banking Journal

Policy by Horror Story (Good Stories Needed)

Academic journal article ABA Banking Journal

Policy by Horror Story (Good Stories Needed)

Article excerpt

"I TOOK MY IN-LAWS OUT FOR A holiday brunch and put it on my debit card. Thank God my bank had overdraft protection, because I had forgotten to transfer in money to cover the meal!"

One good anecdote is worth a hundred pages of reasoned testimony, but like a two-edged sword, stories can work for and against you. In the case of overdraft fees, the horror story has ruled in Congress so far. It's time to stop that.

The Federal Reserve just issued new rules guiding the application of overdraft protection plans, but Congress, not to be denied, has weighed in with its own proposals, some of which are far more onerous. This is a reprise of what happened earlier this year with credit cards.

The Fed rules proved to be workable. They address several practices that, frankly, needed addressing. A month or two earlier, several banks publicly announced similar adjustments to their programs. While welcome, had such steps been taken two years ago (or the practices never allowed to begin with--as, for example, arranging transactions in order of highest value to lowest) there would not be an overdraft problem facing the industry now. There would be no horror stories of someone getting hit with $100+ in overdraft fees for buying coffee with a debit card. Consumers, of course, can avoid these fees by being more careful. But to take advantage of such lapses in order to maximize income is simply a recipe for disaster.

ABA President Ed Yingling addressed the broader point here in remarks at the association's Annual Meeting in October. "A community banker from Ohio," he said, "told me of his frustration that the differentiation between traditional banking and the bad guys has been muddled by the small minority in our industry who offered products that took advantage of people. …

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