Overdraft Charges In Congressional Crosshairs

A new political effort to stop large overdraft fees could change the way we do banking. Congressional Democrats want to end the banking practice of automatically charging high penalty fees on customers who spend beyond the funds in their accounts. Host Scott Simon speaks to New York Times business columnist Joe Nocera about who's affected and what it means for checking and savings accounts.

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SCOTT SIMON, host:

A new political effort to stop large overdraft fees could change the way Americans bank. Congressional Democrats want to end the practice of charging high penalty fees to customers who spend beyond the funds that are in their accounts. For more now we're joined now by Joe Nocera, author of Talking Business column of the New York Times at the studios of the Radio Foundation in New York. Joe, thanks for being with us.

Mr. JOE NOCERA (Columnist, New York Times): Thanks for having me, Scott.

SIMON: So what are these proposed changes?

MR. NOCERA: Well, that's pretty simple.

(Soundbite of laughter)

Mr. NOCERA: They want…

SIMON: That's why I asked you, Joe, it was a simple question and I hope to get a straight answer. Yes?

(Soundbite of laughter)

Mr. NOCERA: They want to eliminate the overdraft fees on debit cards. Now, you know, as recently as 10 years ago or so there weren't any overdraft fees on debit cards. If you ran a debit card through a machine and you didn't have enough money, they just said forget it.

SIMON: Yeah.

Mr. NOCERA: But somebody figured out maybe a decade or so ago that it was very lucrative to instead of doing that to actually let the thing go through and then just charge you for the overdraft, and it began at around $10 and now it's up to around $40. And you know, now that we are in a recession and financial crisis and all of that, you know, both Congress and the people who are being charged these fees have started to pay attention and have come to view them as pretty outrageous.

SIMON: But I mean people shouldn't write rubber checks, right?

Mr. NOCERA: No, they shouldn't write rubber checks. But Scott, a lot of what's happening here is that the people who are being charged these fees are precisely the people who can afford them the least.

You know this is not something - the upper middle class is not being charged very many overdraft fees when their debit card bounces because it almost never bounces. It's the person who's living paycheck to paycheck. And also you're not warned that - you don't have the option to opt out of it and you're not warned that, you know, you're close to the line. You're not given an option of deciding whether to pay for it or to walk away. You just find out you have a $39 charge on your bill. So it is in that sense pretty outrageous. And you know, some banks trying to preempt any potential legislation this week decided to either lower their fees or to give people an option to opt out, and those included the Bank of America, JP Morgan Chase and Wells. So, you know, the banks themselves kind of see the handwriting on the wall.

SIMON: But are they doing this hoping to dissuade people from - dissuade or deter legislation, or is it too late for that?

Mr. NOCERA: They are definitely doing it to deter legislation. Now, there has already been legislation passed this year, but that had to do with credit cards. And in the anger over these overdraft fees, which really were exposed by the press over the last four or five months or so - USAToday, New York Times, and "60 Minutes"…

SIMON: Mm-hmm.

Mr. NOCERA: ...now Congress is so angry they want to move up the starting date for this legislation from some time in 2010 to the end of 2009. So there is definitely an anti-credit card, anti-debit card movement on Capitol Hill. And you know, the banks are nervous.

SIMON: Yeah. Joe, I want to switch directions totally and ask you a G-20 question.

Mr. NOCERA: Oh, boy.

SIMON: Okay? What do you think...

Mr. NOCERA: Yeah, I'm...

SIMON: What do you think...

Mr. NOCERA: I'm...

SIMON: Did they deserve all this self-congratulation they were giving each other for averting a world financial crisis?

(Soundbite of laughter)

Mr. NOCERA: Not especially. I mean, yes. They deserve some. I mean, look, you know, England saved two banks. Germany shored up its banks. The U.S. did what they had to do to avert financial crisis. But, you know, the problem with what Dan called those nice sounding words and sentences is everybody can say, oh yes, we need new capital requirements in our banks and that they should be standardized across nations.

But the U.S. and Europe in particular have such huge differences in what they view legitimate capital standards, which are really, really important, that, you know, they're going to be fighting about this for the next five years. So, you know, agreeing on principles is one thing, but agreeing on a true plan of action with real numbers behind it is something quite, quite different.

SIMON: Mm-hmm. And the lack of jobs, that's still the major problem in the world economy?

Mr. NOCERA: It most certainly is. It most certainly is. You know, here, Europe, you know, it's not so much a problem in China but the Chinese know how to deal with a financial crisis. They just pour money at it.

SIMON: Joe Nocera, author of the Talking Business column in the New York Times, joining us today from the studios of the Radio Foundation in New York.

Joe, thanks very much for being with us.

Mr. NOCERA: Thanks for having me, Scott.

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