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In a blog post following several meetings with credit unions this week, Gary Stein, CFPB’s Deposit Markets Program Manager, discussed overdraft protection. In the post Stein talks about bank revenue from overdraft and non sufficient funds (NSF) fees and also offers “tips to avoid overdraft and NSF fees”.
Stein’s suggestion for consumers include:
1. Don’t “opt-in” to debit card-based overdraft: your bank or credit union can’t charge you a fee for an overdraft with your debit card or at an ATM unless you “opt-in” to overdraft coverage for these transactions.
2. Link your checking account to a savings or money market account at your bank or credit union: if you run out of money in your checking account, the bank will pull money from the account you’ve linked it to when needed to cover new transactions. Note that many institutions charge fees for sweeping funds from a linked account but those fees are generally lower than per item fees for overdrafts or NSFs.
3. Track your balance as carefully as you can, and if your bank or credit union offers them, sign up for low balance alerts to know when you’re at risk of overdrawing your account.
4. Switch to a checking or prepaid account that does not authorize overdrafts. Note that some accounts that do not authorize overdrafts still charge NSF fees for returned checks and electronic (ACH) payment attempts.
Lacking from this advice is a point that the CFPB continues to overlook; namely that consumers are often affirmatively choosing overdraft services, rather than seeking ways to avoid them. Overdraft services are one of several options credit unions offer members, and can provide protection for members whose only other options might be predatory, illegal online, or offshore loans.
In a recent July 2015 survey about overdraft, 72% of all credit union members and 63% who have used overdraft services in the last year said they prefer to “make their own choices about overdraft protection and continue to have options available without new federal government restrictions.” The high satisfaction level with the product is also evident in the CFPB’s own complaint data, which found that in 2015 only 1.5 percent of over 500,000 consumer complaints pertained to overdraft.
This week during CUNA’s GAC, credit unions provided numerous examples to the CFPB about members choosing overdraft services as their best option to afford everyday expenses such as gas, electricity, and food. Credit unions have a long history of working to provide the best possible solutions to members needs on a daily basis and during times of financial distress.
We expect that CFPB will hold a SBREFA panel for a rulemaking for overdraft protection late this year.
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