Despite many of the country’s national banks implementing new rules to limit overdraft charges on its customers, U.S. Senator Dodd’s, D-CT, Fairness and Accountability in Receiving Overdraft Coverage Act (FAIR) certainly threatens the revenues these banks generate from those fees.

In recent weeks, JP Morgan Chase (NYSE: JPM), Bank of America (NYSE: BAC) and Wells Fargo (NYSE: WFC), among others, announced plans that limit the number of overdraft charges a consumer could be hit with on a single day.  Changes were also made to opt-out policies as customers previously had very limited opportunities to discontinue the overdraft protection coverage.

More light was brought to the issue of excessive overdraft charges as stories surfaced concerning customers who had been hit with overdraft fees of $20 or more, multiple times in a day, when overdrawing on debit card transactions by as little as a dollar.

The recent buzz on the subject gained Washington’s attention and Senator Dodd, who heads Senate Banking Committee, is now pushing the FAIR bill.

The Bill includes such items as:

  • Limiting the number of overdraft coverage charges banks a customer is charges to just one per month and six per year.
  • Stopping banks from manipulating the order in which they post transactions in order to ring up extra fees.
  • Requiring that customers be notified when they overdraw their account by either e-mail, text or traditional mail.

Banks have already begun to argue they can regulate themselves without federal legislation coming into the picture, using their recent actions as an example. 

Being that big banks stand to lose hundreds of millions each if the bill is passed, its no surprise they are being proactive in showing they can act in a fair matter.

In recent reports, JP Morgan Chase CEO Jamie Dimon said the bill would likely cost his banks about $500 million in revenue annually.

Big banks are not the only ones opposing the bill either.  The Independent Community Bankers of America is currently disappointed in the plan as it feels efforts to regulate a few big banks is pressuring their business as well.

“ICBA supports clear and simple disclosures for the overdraft protection programs valued and appreciated by community bank customers nationwide,” said Karen Thomas, ICBA executive vice president and director of government relations, in a press release.

However, Thomas added “efforts to tighten rules on the minority of financial institutions with abusive overdraft protection programs will severely hamper the ability of community banks to offer the products and services their customers need. Community banks want the ability to continue to offer personalized service and the freedom to cover overdrafts according to the needs of each customer.”

Community banks, which are smaller and usually have more personal relationships with their customers don’t want to be handcuffed from issuing personalized overdraft options, based on a customers needs.

Though many overdraft rules will be good for the industry, the bill may also stuff smaller banks into a box in regard to overdraft policies.