Co-authored with Rhode Island State Rep. Peter Wasylyk
Just as would a credit card company itself, the Federal Reserve has buried a key pocket-pinching regulatory change in the fine print. In its regulations issued last month, the Fed did Americans a huge disservice, doing away with consumers' potential right of recovery of past and future overdraft charges -- which will total nearly $37.5 billion in 2009 alone. As the Senate considers Ben Bernanke's re-nomination to the Fed's chairmanship, senators must call him to task for this cynical maneuvering.
For years, advocates have strived to develop a legal theory that would allow consumers to recoup these fees and prevent banks from charging them in the future. They've asserted that the banks have engaged in deceptive trade practices, breach of good faith, and the like, but have generally found roadblocks along these avenues, in the form of preemptive federal regulations.
But a new legal theory has showed promise: Attorneys and some regulators argue that overdraft fees amount to a credit feature. It's a loan, after all: An overdraft entails a bank providing a consumer with money, which must then be paid back, with penalty. The Truth In Lending Act (TILA) requires that lenders clearly and conspicuously disclose the terms and conditions of the loans they offer to borrowers, whereas consumers typically aren't even given notice prior to a bank charging them overdraft fees. Attorneys from across the nation (including Peter Wasylyk, coauthor of this piece) filed a class action suit in federal court in Rhode Island against Citizens Bank on August 18 on the TILA theory, and the argument has caught people's attention -- so much so that the Federal Reserve saw fit to acknowledge it in new regulations which it promulgated last month.
The Official Staff Commentary on overdrafts adopted by the Board of Governors of the Federal Reserve on November 12 -- to which the courts must give deference when deciding relevant cases -- notes that "Some consumer advocates ... argued that overdraft services should be subject to TILA." The Fed then "clarifies" matters, asserting that TILA protections never did, and never will, apply to overdraft charges: "the addition of an overdraft service to an accepted access device does not constitute the addition of a credit feature under Regulation Z [pursuant to TILA]."
As Congress strives to improve protections from overdraft fees -- Senate Banking Chairman Chris Dodd (D-Conn) has proposed tough new legislation -- and as consumer advocates get closer than ever to the recovery of tens of billions of dollars in overdraft charges, the Fed has bent over backwards to protect the banks from accountability to the very public which has generously provided them with a $700 billion bailout.
Congress can rectify the situation by making clear that TILA protections do, in fact, apply to overdraft fees -- and by shaming Bernanke for adopting these predatory regulations in defiance of the will of Congress and the public.