Credit Unions Say the CFPB Proposed Overdraft Rule is Misguided
In what appear to be form letters, credit unions say overdraft programs help members
Although comments on the proposed rule are not due until April 1, credit unions in the South already are blasting the Consumer Financial Protection Bureau for its proposal to limit overdraft fees at large banks and credit unions.
“Rome Kraft Employees Credit Union is adamantly opposed to regulation that seeks to limit or alter overdraft services provided by credit unions,” Diane McCoy, president/CEO of the Rome Kraft Employees Credit Union in Rome, Ga. wrote, in a letter to the CFPB.
She continued, “interfering with credit unions' charge to serve their members is a fundamentally flawed approach and it will have massive unintended consequences. The CFPB should immediately and fundamentally rethink its approach to overdraft programs.”
McCoy’s sentiment was echoed by several other credit unions and by the League of Southeast Credit Unions. Many of the letters contain identical language, which suggests that credit union officials were working from a form letter template written by rule opponents.
The CFPB issued its long-awaited overdraft rule earlier this month. It could drive overdraft fees down to as low as $3 at the nation’s largest financial institutions. The agency also is proposing to treat overdraft fees as normal consumer loans, which would require financial institutions to disclose interest rates and fees. The Truth in Lending Act protections provided to consumers using traditional credit unions also would apply to overdrafts.
Although the proposal is targeted toward the largest institutions, other credit unions and banks ultimately will be forced to comply, McCoy wrote. “Smaller institutions will be disproportionately impacted and forcibly compelled to alter their fee structures,” she wrote. “Megabanks will be able to more easily make up the difference, while small financial institutions will have to absorb additional costs or cut consumer services to remain competitive in the eyes of consumers.”
Credit union members consistently have told credit union officials that they view overdraft services as essential, according to Al Rose, president/CEO of University Credit Union in southern Florida.
“Consumers do not want their card to be declined when trying to buy gas or purchase groceries for their family and they trust their credit union to be there for them if they need to utilize overdraft services,” Rose wrote, in a letter to the CFPB.
Credit unions also wrote that they had instituted changes at their financial institutions to help members who are prone to overdrafts.
“Without government intervention, we reworked our overdraft program to better serve our members and encourage sound financial habits,” Benson Bolling, chief lending officer at the Alabama Credit Union, wrote in a letter to the CFPB. “We have implemented fee reductions, daily fee caps, and charge no fee at all for small overdrafts. This proposed rule ignores these considerable efforts.”
In its letter to the CFPB, the League of Southeastern Credit Unions wrote that the trade group last year surveyed member credit unions about their experiences with overdraft policies. The league represents nearly 300 credit unions in Alabama, Florida and Georgia.
Grace Newcombe, vice president of federal advocacy and communications for the League of Southeastern Credit Unions, wrote that 94% of the credit unions responding said they provide educational materials or alerts to frequent overdraft program users.
“Repeatedly, members have consistently told credit unions that they view overdraft services as essential and, when given the option, they overwhelmingly opt into overdraft programs,” Newcombe wrote. She added that 80% of frequent overdraft users in the league’s “footprint” are middle- to high-income earners, not low-income households.