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WASHINGTON – Describing overdraft protection products as “a deliberate, systemic attempt to hook consumers onto overdrafts as a form of high cost credit,” the staff attorney for the National Consumer Law Center, along with the Consumer Federation of America and other national organizations sent the Federal Reserve Board a comment letter calling on the agency to “immediately implement a number of reforms to prevent banks from marketing bounce protection without receiving consumers’ consent or spelling out the product’s true costs.” “There is no question that these products are loans at outrageously high prices,” said NCLC’s Chi Chi Wu. The groups sent a report along with their letter they said described how banks “aggressively and deceptively market bounce protection as credit.” The groups also noted that banks typically target low and moderate-income consumers almost exclusively when they market bounce protection. “A small group of consumers appears to pay the bulk of bounce protection fees, with about 4% of bank customers paying about half the fees, as much as $2,000 per customer annually,” they said. The consumer groups made several recommendations to the Fed to address the issue. Among them were: * requiring Truth in Lending credit disclosures for bounce protection, including the finance charge and Annual Percentage Rate; * prohibit banks from claiming that bounce protection is “discretionary” when they promote it as credit. Banks the group wrote. should not be allowed to encourage their customers to write checks without making a firm commitment to pay the overdraft; * prohibit banks from imposing bounce protection plans on consumers without their consent; * require banks to inform consumers about more reasonable alternatives, such as overdraft lines of credit and transfers from savings accounts; * prohibit banks from seizing Social Security, SSI, and veteran’s benefits to repay bounce protection loans. The consumer groups’ comment letter also underscored the need for the Fed to take action on issues related to credit card fees and high mortgage costs.

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