WASHINGTON -(Dow Jones)- A banking executive pushed back against parts of a bill that would limit the overdraft fees banks could charge customers, according to remarks prepared for a U.S. Senate Banking Committee hearing on Tuesday.
Objecting to a provision of the overdraft bill capping fees for covering insufficient funds at one per month and up to six per year, Citigroup Inc. (C) warned that as a result banks could stop paying overdrafts altogether, according to prepared testimony of John Carey, the chief administrative officer of Citigroup's North America Consumer Banking department.
"It is impossible for banks to predict which customers will be responsible for those losses, so a very real result may be that banks eliminate payment of overdrafts," Carey said in his remarks.
Banks have faced withering criticism from consumer groups over the fees they charge customers who make purchases without enough funds to cover their cost. In 2008, banks charged their clients $23.7 billion in overdraft fees, according to the Center for Responsible Lending. And most of those fees are incurred by a small percentage of consumers, the Federal Deposit Insurance Corporation found in a December 2008 report: 75% of customers made no overdrafts in the year-long period. It was the people with five or more annual overdrafts who paid 93% of the fees, according to the FDIC.
Consumer advocates noted that the people most likely to be charged repeated overdraft charges are those least likely to be able to afford them.
"In fact, limiting banks to one fee per month gives banks a financial incentive to limit unfunded purchases and withdrawals," Jean Ann Fox, Consumer Federation of America's director of financial services, said in her prepared remarks.
Consumer organizations and Citigroup also split on when banks should be required to get clients' consent to participate in overdraft programs, which few banks require now. The bill would require banks to obtain written consent before charging clients fees for overdrafts incurred with debit cards or ATM withdrawals.
Citigroup would prefer requiring consent at the point when the consumer is trying to make the withdrawal or purchase without sufficient funds. A consumer who has opted-out of any overdraft protection might not want to always be bound to that, Carey said. Consumer groups said instituting an opt-in provision at the transaction time would require further research.
The bill also proposes restricting fees to a "reasonable and proportional" amount rather than as a deterrent to dissuade customers from making such transactions.
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