Mich. Legislature working on reducing overdraft fees

Black Friday might be a little brighter during future holiday shopping seasons if legislation to protect consumers from excessive overdraft fees makes it through the Michigan Legislature.

Sen. Gretchen Whitmer, D-East Lansing, is developing legislation that would reduce overdraft fees and prevent multiple overdraft fees in a 24-hour period.

Overdraft fees occur when banks charge customers penalty fees when customers make purchases with debit and ATM cards even if there are insufficient funds in the customer’s account.

Whitmer’s legislation also would eliminate overdraft manipulation by requiring banks to process smaller overdraft charges before larger charges and require banks to tell consumers how overdraft fees are
calculated.

Similar legislation was proposed by the U.S. Senate Banking Committee earlier this month, and Tom Lenard, a spokesman for the Michigan Senate Democrats, said state-level movement on this issue is necessary, as well.

“As this debate continues nationally, we want to make sure that Michigan is a leader in trying to protect consumers,” he said. “We are hoping that there will be more opportunities for states to have a (voice) in regulating some financial services.”

The federal measures, proposed by U.S. Senate Banking Committee Chairman Sen. Christopher Dodd, D-Conn., would give customers the option of participating in overdraft programs and regulate excessive overdraft charges. But the state measures aim more at creating transparency and ending overdraft manipulation among Michigan-chartered banks, Lenard
said.

Michigan-chartered banks are community-based banks such as Summit Community Bank, 1600 Abbot Road.

“I’m not all that surprised that there is movement at both the state and federal level,” economics professor Charles Ballard said. “People have ended up paying charges because they didn’t know their balance. This has caused … an outrage among consumers and political leaders.”

In 2008, overdraft fees cost consumers more than $576 million in Michigan and about $23.7 billion nationwide, according to a press release from Whitmer.

MSU Federal Credit Union is a federally chartered credit union, so the statewide legislation would not affect its policies, said Joyce Banish, vice president of university and community public relations for MSUFCU.

“Our disclosures are quite explanatory so there will not be any changes,” she said. “It’s important that if a student or anyone is carrying a debit card (they) are aware of not spending more than what is in their account.”

MSUFCU charges a $25 insufficient fund fee if a customer doesn’t have overdraft protection, or if the customer’s other accounts are empty, Banish said.

“It seems like you are hearing more and more people having a lot of overdraft fees, especially if they are not aware,” said state Rep. Kim Meltzer, R-Clinton Township. “Sometimes it snowballs because of a bunch of small checks and … all of those small checks get overdraft fees.”

The legislation would prevent this “snowball” effect because it requires banks to process smaller charges before higher charges. Higher charges often drain an account and can lead to multiple overdraft charges for subsequent smaller transactions.

Anthropology freshman Dillon Kuiava said the laws would create needed transparency between consumers and banks.

“I’ve had issues where the way they presented the overdraft fees were not very clear,” he said. “As a result, I’ve had to pay over $100 (in fees).”