LOUISVILLE, Ky.—One analyst contends that the CFPB is not trying to kill overdrafts, just curb their use—and that the resulting big threat to credit unions will come from Silicon Valley.
Bob Giltner, CEO at R.C. Giltner Services Inc., believes the proposed rules the CFPB has written addressing overdrafts with prepaid will be adjusted for checking next year, reducing the number of consumers FIs will want to grant access to overdrafts.
“Overdrafts will be around, you will just have to look at the ability of the customer to repay, and give them at least 21 days to repay, not at the next deposit,” explained Giltner. “So the cycle of overdrafts is what the CFPB is going to attack.”
Giltner predicts that FIs, overall, will see a 20% to 30% drop in overdraft revenue. Where the shortfall will come from is through banks and credit unions not being able to pick up all the overdraft items they do today. “There will
Bob Giltner
be some people the financial institution determines they can’t provide overdrafts to anymore.”
Booking Many Small Loans
Giltner contends that the payday loan changes Colorado enacted in 2010 foreshadow the tack the CFPB will take. “In that state people can only refinance a payday loan every two to three months, not two to three weeks. I think the CFPB just wants to cut out some of the overdraft volume.”
But the big change is that FIs will have to begin booking many small loans, which Giltner said core system providers will make simpler.
“Core providers have automated the overdraft program, but have not automated small loans because there has not been any money in it,” said Giltner. “Now, with the CFPBs rules that are coming, there is going to be money it.”
Giltner, whose company markets the PaySound online digital checking product that does not offer overdrafts, emphasized how digital technology lenders are making money on small loans, and insisted credit unions need to follow suit.
“The biggest risk for credit unions here is not regulation, it’s the Silicon Valley digital lenders who will do a better job of serving their customers,” said Giltner. “Two-thirds of all liquidity revenue is not related to overdrafts, and credit unions need to pay attention to that.”
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