Mark Winston Griffith

Banking Department Takes Lead in Race to the Bottom

Just when you thought it was safe to use your debit card again, the New York State Banking Department has found a new way to chip away at consumer protections for low- and moderate- income communities.

Follow me for a moment: You're out of town and make an ATM withdrawal for 20 bucks. If you didn't have enough in your account to cover this, the ATM machine wouldn't have given you the cash, right? Wrong! It seems your bank never told you that you had overdraft protection. When you get back home a few days later you discover that you owe your bank more than a hundred dollars in overdraft and re-occurring late fees.

Fees my...foot. That's drive-by loan sharking.

Welcome to the world of "courtesy" overdraft protection. Last month the New York State Banking Department proposed to allow New York State chartered banks to engage in this previously prohibited, and rather odious, activity. Right now only federally chartered banks are allowed to reach so low. With overdraft protection programs, unlike more traditional overdraft programs and lines of credit, a bank doesn't need to get your explicit consent to overdraw your account using outrageously high fees.

Overdraft protection represents a way for banks to offer their own version of payday lending, that particularly exploitative form of short-term lending that is offered mostly through check cashing operations, and which is, incidentally, illegal in New York State.

Policy wise, overdraft protection represents the rapid erosion of consumer protection that has followed the U.S. Office of the Comptroller's decision last year to block states from applying their own rules to local nationally chartered banks.

Now state chartered banks in New York say they need to be able compete with their nationally regulated peers. Offering overdraft protection is one way to do it, they say.

Supposedly in an attempt to prevent State chartered banks - which literally bankroll the New York State Banking Department - from bolting the New York State regulatory system and becoming federally chartered institutions, the Banking Department is poised to give its member institutions the same exemption from moral standards that national charters now enjoy.

The question for Diana Taylor, the New York State Bank Superintendent, is: How low can you go?

Mark Winston Griffith: Author Bio | Other Posts
Posted at 1:20 PM, Oct 27, 2005 in Banking
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