Overdraft policies might change to benefit students

Students might not have to worry about purchasing a $2 latte with their debit card before the week’s paycheck makes it into their bank account if legislation proposed in the U.S. Senate becomes law.

Measures introduced Monday by U.S. Senate Banking Committee Chairman Sen. Christopher Dodd, D-Conn., would create new protections from excessive overdraft fees for banking customers and would give customers the option of participating in overdraft programs.

Most banks automatically sign all customers for overdraft protection, meaning purchases made with debit and ATM cards go through even if there are insufficient funds in the customer’s account. At some of these banks, customers can be charged penalty fees for multiple overdrafts in the same day, even when they are purchasing something as cheap as a coffee, said Joyce Banish, vice president of university and community public relations for MSU Federal Credit Union.

The bill requires customer consent before they can be enrolled in overdraft protection programs, limit overdraft charges to once per month and six per year, require banks to notify customers if they overdraw and make penalty fees proportional to the cost of processing the overdraft.

For students banking with MSUFCU, this law could have less of an effect, Banish said.

“We are already very communicative about our fees and charges,” Banish said. “When you open an account, you get a new account disclosure which (explains) all the fees. Before any fee would be charged — if say there was change in disclosures — we would notify costumers at least a month in advance.”

If a student overdraws, MSUFCU automatically transfers the funds to the customer’s checking account from credit or savings.

But MSUFCU charges a $25 insufficient fund fee if a customer doesn’t have overdraft protection, or if all of the customer’s other accounts are empty, Banish said.

Dodd estimated this year, banks will receive about $1 billion in customer overdraft fees from young adults.

“Banks should not be trying to bolster their profits at the expense of their customers,” Dodd said in a statement.

David Schweikhardt, a professor in the Department of Agricultural, Food and Resource Economics, said this legislation would make policies transparent and limit consumer penalties.

“The issue here is: ‘Do you want these charges to be transparent to consumers so they know what they are paying, or do you want them to be hidden, and can banks allow any level of cost that they desire for fees?’” Schweikhardt said.

Sylvia Warner, spokeswoman for U.S. Rep. Mike Rogers, R-Brighton, said similar legislation is being considered in the U.S. House.

“Congressman Rogers supports consumer choice and believes that it is important to carefully weigh the benefits of new financial regulations,” she said.

But some students said this might lead to irresponsible banking among college students.

“I don’t think it’s necessary,” chemical engineering freshman Tuwayan Alrashedi said. “It will make it easier for people our age to overuse their current funds.”