Lawmakers want to limit overdraft fees

Having an overdraft allowance on your checking account can be both a blessing and a curse for consumers. At least, it has worked that way for us. For banks and credit unions, overdraft fees bring in billions of dollars in revenue each year. Lawmakers are trying to limit unfair overdraft charges, reduce fees and prohibit practices that lead to customers overdrawing their accounts.

The Overdraft Protection Act introduced by Representatives Carolyn Maloney (D, New York) and Maxine Waters (D, California) will limit overdraft fees in several ways. The bill limits financial institutions to only six overdraft fees per year, and no more than one per month. Fees must be "reasonable and proportional" to the overdraft amount. It also prohibits fees that occur only from a hold placed on an account, such as a hold from a hotel, rental car agency or gas station. The bill would also stop financial institutions from posting transactions in such a manner as to maximize overdraft fees.

I have recent (and unpleasant) experience with overdraft fees. For a while, we had some of our bills automatically debited from our checking account on certain days of the month. Sounds like a good idea, right? You don't have to worry about logging in or writing a check to pay them. Unfortunately, one of our largest bills was deducted three times due to a processing error on the part of the payee. Other payees were also paid at the same time and were processed first. When those three transactions hit our account, it caused an overdraft of more than $200. We also had two overdraft fees associated with those transactions.

After many phone calls back and forth between the payee and our bank, we resolved the issue, got our money back, and got the overdraft fees removed. Without the payee calling on our behalf, though, I don't think the overdraft fees would have been refunded. Obviously, that's an unfair practice, but it has happened to several people we know. Since then, we have stopped any bills from being automatically debited from our account and have, instead gone back to paying bills the traditional way, with checks.

Do you have any experience with unfair overdraft fees? Tell us what happened in the comments.

Image courtesy 401kcalculator.org, via Flickr.