WASHINGTON—Ahead of its hearing this week on overdraft fees, both NAFCU and CUNA each wrote to the Senate Banking Committee Subcommittee on Financial Institutions and Consumer Protection urging caution when it comes to any new laws around overdrafts and overdraft programs.
NAFCU said it supports a “transparent, and competitive market for consumer financial services,” but cautioned that increased scrutiny or legislative efforts to eliminate overdraft protection programs are likely to result in “significant negative impacts” on borrowers and credit unions.
“It is inappropriate to intervene in market forces that are already leading many credit unions and other financial institutions to reduce, limit, or eliminate overdraft and non-sufficient funds (NSF) fees,” wrote NAFCU Vice President of Legislative Affairs Brad Thaler.
Citing the opt-in nature of overdraft fees set forth by the CFPB, Thaler told the committee credit union members who benefit from courtesy pay or overdraft protection programs do so willingly and with full disclosure of the program’s costs and features. The opt-in feature for debit and ATM overdrafts has given consumers “more control over the overdraft rule’s notice requirements and helped consumers to better understand the cost of overdraft programs,” added Thaler.
Moreover, former Committee Chairman Barney Frank (D-MA), previously recognized the importance of an opt-in system and how consumer choice should supersede legislation around overdraft programs stating at a 2009 hearing that we wouldn’t “be in a situation where we are talking about legislation if you would have had an opt-in regime from the beginning,” NAFCU noted.
Issues to Keep in Mind
Thaler urged Congress to keep the following in mind when examining overdraft fees:
- Surveys done by credit unions of their members have shown they positively value the safeguards these programs provide
- According to NAFCU surveys, a vast majority of credit unions reported offering specialized intervention and financial education for frequent courtesy pay program users to ensure they are not overly reliant on these programs
- Many credit unions already do not assess fees when an account is overdrawn by a de minimis amount
- A majority of credit unions reported routinely waiving fees when a member incurred the overdraft on accident and requested a fee waiver
CUNA: A Convenience & Accommodation
In its letter CUNA said it strongly objects to legislation, regulation and other government intervention to restrict the ability of credit unions to offer overdraft protection plans that help members resolve short-term financial difficulties.
“Credit unions offer overdraft programs as a convenience and accommodation to a members’ benefit, and members that choose to opt-in often do so for the peace-of-mind these services provide,” the letter reads. “In some cases, the opt-in decision was made precisely for the comfort of knowing that transactions would continue to be processed during an unexpected financial emergency or other cash shortfall.”
CUNA said there is “substantial diversity” in credit union overdraft program features, as each institution designs programs to “meet the needs of its membership.”
“Irrespective of innovations in overdraft, credit unions have a track-record of establishing policies and procedures aimed at assisting members that frequently use overdraft protection,” the letter reads. “When a credit union becomes aware of a member’s frequent overdraft usage, they often attempt to contact the member to address the member’s financial situation and offer financial education support or alternative credit products.”
Other Points Raised
CUNA also told the Senate:
- The best and least disruptive path forward would be to continue permitting transactions to be processed and encouraging affected consumers to reach out to and work with their local credit union to reduce or eliminate any fees or to consider other low-cost products and services
- Overdraft protection programs are subject to substantial regulation and oversight, and credit unions are regularly examined for compliance
- Competition and consumer demand have driven market changes for overdraft protection programs, and many credit unions are exploring new methods to approach their programs and examining new sources of noninterest income
CUNA and NAFCU also submitted a joint letter to the subcommittee raising similar concerns.