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CUNA Regulatory Comment Call

CUNA MEMBER CREDIT UNION “BOUNCE PRIVILEGE” GUIDELINES

Issue

Many depository institutions, including credit unions, offer “bounce privilege” services, in which the institution sets a dollar limit and pays overdrafts up to this limit without a case-by- case assessment, while preserving the right not to pay particular items. A fee is charged for each overdraft that is paid.

Although not directed at credit unions, a number of these bounce privilege plans have been subject to criticisms that these plans charge high fees and are heavily promoted based on intensive, if not sometimes misleading, marketing that encourages consumers to use these services frequently in an effort to boost fee income, without regard to the financial well-being of the consumer.

Credit Unions Concerns/Interests

Credit unions have a long and proud history of service to their members by providing products and services that meet members’ needs and that are in the members’ best financial interests. As member- owned, democratically controlled financial cooperatives, credit unions want to help their members who may, on occasion, need to or inadvertently overdraw their share draft accounts. Bounce privilege services offered by credit unions help members avoid “bouncing” the occasional share draft, which saves members both the embarrassment and substantial fees charged by the merchant.

If credit unions were no longer able to provide such services, the beneficiaries under this scenario would include title lenders and payday lenders, many of whom have been associated with the problem of predatory lending. Bounce privilege services provide real opportunities for credit unions to help facilitate the government’s goal of eradicating predatory lending by preventing such an outcome.

The Credit Union National Association, the largest trade association representing credit unions, strongly supports the ability of credit unions to offer bounce privilege plans as a means to help their members resolve short-term financial problems. This is in contrast to others who may heavily market these programs in order to boost fee income, without regard to the best interests of the consumer.

CUNA’s Board of Directors calls on every CUNA member credit union to adopt bounce privilege standards and ethical guidelines that will help emphasize credit unions’ concern for consumers and further distinguish credit unions as institutions that care more about people than money. CUNA will work with key policymakers and regulators to ensure that they understand the benefits that credit union bounce privilege plans provide for the members, consistent with the credit unions’ role as not-for-profit, consumer-owned financial institutions.

Guidelines and Ethical Standards

Bounce privilege services, when offered as a valuable alternative to bouncing share drafts, are fully consistent with the philosophy and principles unique to the credit union system. When offering such services, credit unions adopting these guidelines and ethical standards recognize that the following practices are not consistent with the credit union philosophy and principles and publicly affirm that they will not engage in any of these practices:

• Deceptive Advertisement
  Advertising, representing, or implying that the member should expect that all overdrafts will be paid but then stating in other documents that the paying of overdrafts is discretionary, which is a standard feature of bounce privilege plans. Such advertising may lead members to rely on the service in expectation that all overdrafts will be paid, which would be detrimental if any overdrafts are not ultimately paid by the financial institution.
• Enticing Members to Overdraw Accounts Repeatedly
  Advertising or promoting the bounce privilege plan in a manner that encourages the member to overdraw repeatedly his or her share draft account, as opposed to such a plan being used as an occasional convenience for the member. The frequent overdraw of accounts is a practice that financial education programs, such as those offered by credit unions, generally discourage.
• Failure to Inform Heavy Users of Bounce Privilege Programs of Alternatives
  Bounce privilege programs may not be appropriate for members who heavily use and rely on bounce privilege programs as a means to pay a significant proportion of every day living expenses. For these members, credit unions may offer a number of other products and services that would be more appropriate. These may include transfers from a savings account to the share draft account, as well as other types of less expensive secured and unsecured loans that the credit union offers to all its members.

Return to the Overdraft Protection Privelege comment call