CFPB overdraft proposal will harm credit union members, should be withdrawn

America’s Credit Unions vehemently opposes the CFPB’s proposed rule on overdraft fees, as it will harm community-based credit unions and their members, the organization wrote to the CFPB Monday. The comments were sent in response to the CFPB’s proposal on overdraft services charged by financial institutions with more than $10 billion in assets.

“The proposed rule, with its singular focus on overdraft, ignores the interconnected nature of financial products and services and would only serve to harm or eliminate programs that consumers benefit from,” wrote America’s Credit Unions’ James Akin. “Furthermore, the proposed rule, in the guise of providing a benefit to consumers, would instead drastically reduce the ability of community-based credit unions to help their members in times of financial uncertainty and have widespread impacts on supposedly exempt credit unions and their members.

“The Bureau should rescind the proposed rule and focus its efforts not on setting market prices, an authority the Bureau does not have, but rather on educating consumers and empowering community financial institutions to provide valued financial products and services,” he adds. “Alternatively, as credit unions represent such a small proportion of covered institutions and yet the exempt institutions would still be so seriously impacted, the CFPB should use its exemption authority to exempt all credit unions.”

Among the many concerns, Akin noted:

  • Overdraft protection services serve an essential role for consumers to manage their finances and credit unions work with members to ensure these services are responsibly used;
  • Applying Truth in Lending Act (TILA) and Credit Card Accountability Responsibility and Disclosure (CARD) Act provisions to overdraft is not viable for credit unions, and reducing fees to a breakeven amount would force covered credit unions to remove crucial services;
  • The rule would impact exempt institutions, despite asset threshold, as small institutions with thinner margins would be more likely to reduce overdraft protection services;
  • The rule’s asset threshold is unprecedented and arbitrary and “seems designed solely to sidestep the necessary Small Business Regulatory Enforcement Fairness Act (SBREFA) process,” the letter reads; and
  • The rule’s “de facto price cap” violates U.S. Supreme Court precedent against illegal regulatory takings.

The Federal Reserve Bank of New York announced Monday that it asked participants in its Survey of Consumer Expectations about consumer experience with overdraft services.

“The large majority knew how often they overdrew their account and by how much. Their overdraft experience, we find, begets knowledge; of respondents who overdrew their account in the previous year, 84% knew the fee they were charged, roughly twice the share for other respondents,” it found. The report also noted the the bureau held interviews and focus groups with only 36 low- and moderate-income households to learn about their experiences with overdraft credit.

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