Rep. Maloney: Overdraft Fees Should Be Reasonable and Proportional

Representative Carolyn B. Maloney (D-NY) wrote Consumer Financial Protection Bureau Director Richard Cordray requesting he act immediately to curb abusive overdraft fees.

She specifically urged Cordray to expand the opt-in rules to checks and ACH transactions and to require overdraft fees to be “reasonable and proportional.”

By advocating for overdraft fees be "reasonable and proportional," the Congresswoman is proposing price controls.

However, price controls interfere with the proper functioning of markets.

Capping overdraft fees would create perverse incentives. Individuals would be more likely to overdraw their accounts, while at the same time banks and credit unions would be less likely to offer the product.

In addition, a possible outcome from capping overdraft fees is that people who regularly overdraw their accounts may lose access to checking accounts and possibly to depository institutions.

While policymakers are looking for ways to increase financial inclusion, proposals to limit what banks and credit unions can charge on their products and services, such as requiring overdraft fees to be reasonable and proportional, will achieve the opposite outcome.

Read Representative Maloney's press release and letter.