Last week attendees at the ABA National Conference for Community Bankers in Boca Raton, Florida were given a scare about overdraft fees. One of the speakers at the conference seemed to be taking the opportunity to market his products by attempting to create fears about the impact of potential CFPB regulations on overdraft programs. His claims regarding negative effects on fee income are unsubstantiated. Basically, it’s “Much Ado About Nothing.”
Rather than attack competitive products, let’s focus on the facts – the information actually published by the CFPB and their role in regulating banking activities and programs.
Richard Cordray has time and time again repeated that the CFPB is not looking to do away with overdraft programs. They are continuing to review data and feedback on overdraft programs. They will use information from the new call reports from at least the first and second quarter of 2015 (all institutions with assets greater than $1B are now required to separate service charge income into consumer buckets and commercial buckets). They will look at size of fees, frequency, occasion and order. Mr. Cordray recently told NCUA members that modifications and constraints around existing practices would all depend on what they see in the data.
The CFPB is examining several overdraft issues that they consider significant—the size of fees, frequency of fees, occasions for fees and the ordering of transactions. Their focus continues to be on practices that cause “… the kind of consumer harm that the federal consumer protection laws are designed to prevent.”
There is a distinct difference between a prepaid card and a debit card tied to a bank account. Prepaid cards were originally aimed at providing an electronic vehicle for “non-banked” consumers. Most consumers use a prepaid card so they don’t overdraft (the majority of consumers who had checking accounts used prepaid cards for that reason). For most, it gives them peace of mind that they will never spend what they don’t have. To make the leap that the proposed regulations regarding prepaid cards will apply to overdraft programs is quite a stretch.
Furthermore, the CFPB did not include overdraft fees on checking accounts and debit cards in their discussion of Reg Z and prepaid cards. The only thing the CFPB noted in their proposal regarding overdrafts is that consumers have stated they don’t want overdrafts on prepaid cards.
Community banks and credit unions operate differently from mega-banks and prepaid card issuers. As Pinnacle clients, you operate a consumer-focused overdraft privilege program. When you follow our Critical Success Factors your program is transparent, your accountholders are fully informed, your fees and practices are reasonable and fair, you quickly honor opt-out requests, you offer assistance to excessive users and the Fresh Start program to those who need it, you provide on-line financial education using our Checking Navigator, and you monitor your program to keep it on track. At this point, the CFPB’s plans regarding overdrafts are uncertain and not imminent. They have not yet issued a proposal addressing overdraft fees or practices.
Bottom line—overdraft rules, when written by the CFPB, will be published following their rule-making process and will take a while to implement. The CFPB has not indicated their rules covering prepaid cards will apply to overdrafts on checks or debit cards.
If you have any concerns about your Overdraft Privilege Program, call us at 800.741.7758, or schedule an Overdraft Privilege Program consultation.
By: Joe Gillen
CEO, Pinnacle Financial Strategies