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In a study released this week entitled, “How a Set of Small Banks Compares on Overdraft,” Pew makes sweeping conclusions about overdraft services for all consumers based on a study that looks at the practices of a small number of hand-picked banks. The study ignores or misunderstands how certain regulations apply to overdraft services, and it also fails to consider how credit unions differ from banks when offering overdraft services and assumes they are of little to no benefit to consumers.
Pew makes the following policy recommendations:
Enable banks and credit unions to offer affordable small-dollar loans in place of expensive overdraft penalty programs.
Make overdraft penalty fees reasonable and proportional either to the financial institution’s costs in providing the overdraft loan or to the overdraft amount.
Allow financial institutions to charge customers a maximum of six overdraft fees in any 12-month period, and limit such fees to one per negative-balance episode (i.e., an overdraft that incurs one or more fees).
Prohibit banks and credit unions from maximizing overdraft fees when posting deposits and withdrawals.
Require financial institutions to provide account holders with clear, comprehensive terms and pricing information for all available overdraft options.
It is perplexing to CUNA that PEW makes recommendations for credit union overdraft services when it has not studied them. It also bases its conclusions solely on banks’ public fee schedules, account agreements, and other public disclosures. Recommendations, such as limiting the number of times consumers can use overdraft services to six times per year, ignore the consumer demand for this product, and would in practicality be a back-door attempt to kill a program that credit union members continue to choose.
A July 2015 CUNA survey found that:
Members enjoy the security and peace-of-mind of knowing a transaction will go through. This is evident by the fact that over half of all credit union members currently have ODP active on their accounts.
Chronic use of/reliance on ODP by members is virtually non-existent. Of the roughly one-third of all members that have ever actually used ODP, only 2% report using it once a month or more over the preceding year. (This 2% represents just .6% of all credit union members.)
For members who have ODP available as well as members that have actually utilized ODP, nearly three-quarters support charging a fee for using the service.
Survey participants that have used ODP indicated that if ODP was not available from their credit union, they would turn to other alternative money sources, such as payday or car title loans.
72% of all credit union members and 63% who have used ODP in the last year prefer to have consumers “make their own choices about overdraft protection and continue to have options available without new federal government restrictions.”
We agree with PEW that credit unions should be able offer consumer-friendly small dollar loans, but disagree that they need one-size-fits-all regulations addressing a nonexistent problem with credit union small dollar lending to serve their own members. Credit unions already offer consumer-friendly small dollar loans and arbitrary policies constricting their ability to do this make it more difficult for credit union members to continue to have options for safe and affordable credit.
CUNA has been urging the CFPB to exempt credit unions from its extremely complex, more than 1,300-page proposed rule on small dollar lending. CUNA has also encouraged the CFPB not to issue any additional regulations concerning overdraft services and has asked it to further analyze consumer feedback about their preference to have over
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