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Washington
CUNA Will Monitor CFPB's Continued Overdraft Study
WASHINGTON (6/12/13)--The Credit Union National Association will closely watch progress as the Consumer Financial Protection Bureau (CFPB) continues its study of financial institution overdraft protection plans. CUNA believes credit unions must have continued flexibility to meet their members' needs by offering "bounce protection plans" at reasonable fees.

"From our point of view," CUNA President/CEO Bill Cheney said Tuesday after reviewing the just-released CFPB report on overdraft programs, " overdraft protection and 'courtesy pay' are designed by credit unions to be a service to their consumer members, who have asked that they have continued access to such programs.

"Given that credit unions are member-owned financial services providers, credit unions strive to develop these programs in such a way the costs can be covered for the programs, but at reasonable fees for the members requesting the service. We believe credit unions should continue to have that flexibility to meet their members' needs."

CFPB Director Richard Cordray stated clearly in a CFPB report on overdraft protection plans released yesterday that the bureau does not intend to impede the offering of this service. CUNA was among stakeholders included in an early briefing on Monday and CUNA President/CEO Bill Cheney was directly contacted by Cordray.

Although no policy recommendations were forthcoming in the report, the bureau  noted it will  continue to dig and sift for more information about the variety of programs offered and how they affect consumers' ability to anticipate and control their costs for financial services.

CUNA clarified with the agency early Tuesday that the report focuses on large bank practices and that no credit unions were directly studied by the CFPB. However, the report does include information voluntarily submitted by credit unions or their vendors in response to the bureau's request for information preceding the report.

Although no policy recommendations were forthcoming, the bureau will, however, continue to dig and sift for more information about the variety of programs offered and how they affect consumers' ability to anticipate and control their costs for financial services.

"Our report today examined overdraft practices at some of the country's larger (banks) and found wide variations across them when it comes to overdraft opt-in rates and costs," Cordray explained in a statement accompanying the report's release. 

"The gap may reflect differences in the substance of overdraft programs, or differences in customer base, or differences in marketing approaches. On this point, we are interested to dig in and learn more about the reasons why."

"Our review is intended to provide the factual basis to inform efforts to develop more uniform treatment of these issues across financial institutions," the report's executive summary declares.

The CFPB has supervisory and enforcement authority over financial institutions with more than $10 billion in assets, but its policies affect the overall financial market.

For small institutions, the report notes that an industry vendor that services 1,800 predominantly small institutions reported to the CFPB that NSF and overdraft revenues accounted for 78% of its community bank and thrift clients' deposit service charges and 51% of its credit union clients' fee income in 2012.

In a conversation with CFPB staff this morning, CUNA Deputy General Counsel Mary Dunn reminded that the difference is even more notable because of the capital pressures that face credit unions.  Unlike banks, credit unions can build capital only from retained earnings, from such things as fees for services. "Still affected credit unions work to provide the overdraft protection services their members want but with more reasonable fees."

Data in the report from a research firm strongly suggests fees are lower at many smaller institutions. The median NSF and median overdraft fee across nearly 800 smaller banks and credit unions (outside of the nation's 50 largest depositories) were both $30 in 2012. Per-item fees ranged across this sample from a low of $10 to a high of $45.

In his accompanying remarks, Cordray said the report has three "major takeaways":

  • First, the CFPB claims that data show that opting into overdraft coverage of ATM and debit card transactions makes consumers more vulnerable to increased costs and involuntary account closures;
  • Second, financial institutions have very different policies, procedures, and practices that can be highly complex and difficult for consumers to understand, yet greatly affect whether and how often they will incur overdraft fees; and,  
  • Third,the outcomes for consumers vary widely across financial institutions. The average amount of annual overdraft charges in the study of the largest banks was $225. But consumers at some other banks paid an average of $147, while consumers at others paid $298, more than twice as much.
CUNA is continuing conversations with the bureau to clarify key points and will be included in future meetings with the CFPB on this issue. CUNA is also reviewing its best practices recommendations regarding overdraft protection plans.

Use the resource link to access the CFPB report and Cordray's accompanying statement.
Other Resources

Cordray Remarks
CFPB Report
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