Protection from the Protection Racket

Mark Winston Griffith

Protection from the Protection Racket

In a recent blog and in an article that appeared in today's Daily News I rail against the New York State Banking Department's proposal to allow NY State chartered banks to offer overdraft protection, a product which is designed to prey on low- and moderate income neighborhoods where consumers are struggling to pay their monthly bills.

The Neighborhood Economic Development Advocacy Project recommends that a better Banking Board proposal on overdraft protection would include:

- A prohibition on applying overdraft protection features to ATM withdrawals.
- Restricting banks from making overdraft protection a feature of Basic Banking checking accounts, which are designed to be affordable for low- income and fixed income customers.
- Exempting public benefits from recovery of overdraft protection charges.
- Limiting overdraft protection daily fees from being charged after the seventh day of an unrecovered overdraft

Make no mistake about it, allowing State chartered banks to offer overdraft protection is a bad idea, period. In addition to setting a cruel fee trap, it erodes the consumer protection value of State banking regulations. The bottom line is that if the Banking Department is determined to make overdraft protection a fact of life for all New York banking consumers, there is still a more humane and fair way to regulate it.

Posted at 12:46 PM, Nov 02, 2005 in Banking | Middle-class squeeze | Permalink | Comments (3) | TrackBack (0)

Comments

New Yorkers still have a few days to submit public comments on the introduction of "overdraft protection" but time is of the essence--the comment period ends November 7th.

To voice your opinion, email Sam L. Abram, Secretary of the Banking Board at overdrafthearing@banking.state.ny.us

Chair of the State Assembly's Banking Committee Catherine Nolan came out really strong for consumers on this issue. Here's a link to her testimony:
Banks Overdraft Testimony.doc

She talks about a practice gas stations have begun called "Blocking". She writes:

"I have been hearing complaints from customers who, having paid for their gas at the pump using debit cards, have been put in financial jeopardy by the so-called 'blocks' that retailers place on their checking accounts. During debit card transactions that do not require a PIN, the gas station will charge you not only for the amount you pump, but also will withdraw an additional amount - as high as $75 - from your account. Although this block is temporary, customers who are unaware of it do not realize that their account has been debited for as much as $75 more than they thought. To compound the issue, gas stations sometimes take several days to clear this block and return money to a customer's account."

She brought that up as an example of how consumers are more likely now then ever before to accidentally overdraw their accounts, because they don't even know their money has been blocked.

My question is how is blocking even legal?!

Download file
Click here to read the latest comments on the rules changes from Assemblymembers. This was submitted to the NYS Banking Superintendent by the chairs of relevant Assembly committees.