On Monday, March 23, Democratic Sen. Cory Booker (N.J.) and Sen. Sherrod Brown (D-Ohio) introduced a measure that would suspend overdraft fees during the coronavirus (“COVID-19”) outbreak and other national emergencies. The Stop Overdraft Profiteering Act (the “Act”) would prevent banks from imposing overdraft fees for a six-month period following a national emergency or disaster. In addition to preventing overdraft fees, the Act also would prohibit banks, credit unions, and financial institutions from reporting overdrafts to consumer reporting agencies. The legislation is part of a larger set of proposals drafted by senators Booker and Brown, which would permanently restrict overdraft fees.
“Millions of hardworking Americans have been thrown into financial insecurity because of this unprecedented global pandemic,” Sen. Booker said in a statement. “For these individuals, and those vulnerable before the outbreak, one $35 overdraft charge can lead to financial free fall. Overdraft fees generate enormous amounts of revenue for banks while customers often don’t even know they’ve opted into such charges. Worse, such fees fall on those least likely to be able to afford them. Our bill would end these unfair, exploitative practices during the Coronavirus emergency.”
The proposed legislation comes on the heels of a new wave of overdraft fee litigation. Many financial institutions were targeted in the past decade in long-running consumer class actions based on overdraft and nonsufficient fund fees practices. These cases challenged banks’ overdraft fee procedures and overdraft protection services, contending that banks reordered transactions to maximize overdraft fees. Even before the COVID-19 pandemic, a second surge of overdraft fee litigation appeared, with new claims largely focused on debit card transactions. Troutman Sanders successfully has defended these claims on behalf of banks in cases throughout the country.
Should the Act pass through Congress, it would increase the likelihood of future overdraft litigation, with financial institutions facing hybrid claims based on debit card transactions and the six-month overdraft prohibition period. Regardless of whether the Act passes, however, it appears that overdraft litigation is here to stay. We will continue to monitor this legislation and case developments in overdraft fee litigation.