WASHINGTON—Ahead of the CFPB’s review of overdraft rules, both CUNA and NAFCU have submitted comments to the agency outlining their concerns that any changes should not increase regulatory burden on credit unions.
The CFPB is conducting a review of its 2009 overdraft rule as required by the Regulatory Flexibility Act. The review is intended to determine whether the rule under review should be “continued without change or amended or rescinded to minimize any significant economic impact of the rules upon a substantial number of such small entities, consistent with the stated objectives of applicable statutes,” per the statute.
NAFCU's Andrew Morris shared the association's support of the CFPB's recent efforts to relieve burdens imposed by its overdraft rule on credit unions, and also pushed the Bureau to “objectively consider” the value of overdraft services to credit union members.
"Credit unions have a strong track record of working closely with their members to resolve any disputes or concerns, particularly regarding overdraft fees," wrote Morris, NAFCU's senior counsel for research and policy. "Virtually all credit unions (95%) are willing to waive overdraft fees on a case-by-case basis based on NAFCU surveys."
Morris asked that the Bureau's review consider not just the cost of participation in overdraft programs, but also consumer benefits – many which are associated with credit unions' approach to member service – to correct assumptions regarding the value of overdraft products and consumer preferences.
In the letter, NAFCU suggested that the Bureau should:
- Facilitate consumer choice by identifying opportunities for relief
- Not infringe on overdraft options and instead encourage development of new products and mechanisms for compliance
- Not rely on outdated overdraft studies to inform future rulemaking efforts
- Permit financial institutions to supplement Model Form A-9 with additional information and improve the safe harbor under Regulation E
Morris also pointed to credit unions’ consumer friendly, short-term credit options that serve as alternatives to overdraft, such as payday alternative loans, signature loans, secured and unsecured lines of credit and accommodation loans.
"In general, consumers understand that overdraft protection is just one option that may be more or less suitable depending on their financial circumstances," he said.
CUNA’s comment recommends the CFPB avoid creating unnecessary burdens or limitations on the availability of overdraft programs.
“Credit unions would not support efforts to reopen or revise the 2009 Overdraft Rule to expand the rule’s scope or add additional compliance requirements on credit unions offering this popular product to their members,” the letter reads. “When considering the issue of overdraft protection, the CFPB should keep in mind the personal choice consumers make when they opt in to these services for the comfort of knowing a transaction, especially a necessary or emergency purchase, will be honored.”
CUNA noted its strong support for fair lending practices and proper consumer disclosures and urged the CFPB to consider the numerous differences in credit unions and banks regarding overdraft protection programs.
“When used appropriately by members, overdraft protection programs serve as a lower-cost alternative to high-interest payday loans and are fully consistent with the philosophy and principles unique to the credit union system,” the letter reads. “Because of the member-focused structure, credit unions charge their members lower fees for overdraft services than banks that need to maximize profits for shareholders.”
CUNA also highlighted regulations that impact consumer access to overdraft services:
- The Telephone Consumer Protection Act, which due to a July 2015 ruling from the Federal Communications Commission, is broad and vague, thereby hampering credit unions’ ability to effectively contact members with necessary information related to low balances
- Regulation D, which limits account transfers. After the limit of six electronic withdrawals or transfers, a consumer’s savings account will no longer be available for further overdraft protection. While the CFPB does not have authority over Regulation D, CUNA called on the Bureau to consult with the Federal Reserve and support efforts to eliminate or increase the Regulation D transfer limit.