State lawmakers are considering legislation that would substantially limit overdraft fees from many California-based credit unions.
A customer incurs an overdraft fee when they spend more money than they have in their checking account.
Under Senate Bill 1075, credit unions could only charge customers three overdraft fees per month. The legislation would also establish a five-day grace period for customers to repay their negative account balance and avoid fees altogether.
“Although overdraft is viewed as a financial tool by credit unions, its fees are inherently predatory,” said Sen. Steven Bradford, who co-authored SB 1075 and testified before the Senate Banking and Financial Institutions Committee on Wednesday.
The committee passed the bill and it now heads to the Senate Appropriations Committee. It would apply to more than 100 credit unions chartered in California.
A recent KPBS analysis of state data found state-chartered credit unions collected a total of more than $250 million in overdraft fees in 2022. KPBS also reported on executive pay increases at San Diego-area credit unions and an Oceanside-based credit union that collects millions in overdraft fees every year from young Marine recruits.
The Senate Banking Committee referenced all three KPBS stories in its analysis of SB 1075.
Consumer advocates spoke in favor of the bill at Wednesday’s hearing.
“We see that people of color are overrepresented in those bearing the burden of costs of these overdraft and non-sufficient fund fees, also known as junk fees,” said Jyotswaroop Kaur Bawa, chief of organizing and campaigns at Rise Economy, an economic justice group.
The California Credit Union League, a statewide association of credit unions, opposed the bill. The association argued that overdrafts are a service because they allow customers to make essential purchases after running out of money.
“They use this as a financial tool,” said Robert Wilson, senior vice president of state government affairs at the California Credit Union League.
The California Department of Financial Protection and Innovation is expected to release 2023 data on overdraft fee revenue at state-chartered credit unions and banks in the coming days.
