House Committee to Consider Bill Tightening Overdraft Regulation

Credit union trade groups oppose efforts to limit overdraft programs.

The House Financial Services Committee on Tuesday will mark up legislation that would place limits on credit union and bank overdraft programs and expand the disclosures that consumers must receive about the programs.

“Beginning in the 1980s, non-interest revenue, such as fees associated with customer accounts, started to grow and has since become a sizable portion of overall revenue for financial institutions,” committee Democratic staff wrote in a memo outlining the need for the bill, H.R. 4277.

The committee is scheduled to mark up 12 bills starting Tuesday, including the overdraft bill introduced by Rep. Carolyn Maloney, D-N.Y.

Credit union trade groups have opposed legislation that would place limits on overdraft programs.

In recent months, the Consumer Financial Protection Bureau has focused on overdraft fees, which the agency included in a group of “junk fees” that financial institutions charge consumers. At the same time, some credit unions and banks have either eliminated or limited their overdraft fees.

Among other provisions, H.R. 4277 would:

--Require credit unions and banks to provide disclosure of overdraft fees and notify consumers that if they do not opt into overdraft programs, their transactions will not be approved, and they would not be charged a fee.

--Require institutions to provide information about overdraft programs and the differences among each product.

--Mandate that banks and credit unions must warn consumers if completing a transaction at an ATM or branch would trigger an overdraft and the amount of the fees that would be charged.

--Authorize the CFPB to issue rules and publish model disclosure forms.

--Place limits on the number of overdraft fees credit unions and banks may charge on a monthly and annual basis.

Credit union trade groups have argued that the overdraft programs they offer actually help members.

“Overdraft protection is a service that allows a consumer to purchase goods in situations where the payment exceeds the consumer’s available balance,” Jim Nussle, president/CEO of the Credit Union National Association, wrote last month, in a letter to the Senate Banking Committee, which held a hearing on overdrafts.

He said that credit unions offer overdraft programs as a service to members and that members choose to participate in them.

“To that end, we caution Congress, the CFPB and other regulators against taking actions that are intended to severely limit the availability of overdraft programs from reputable, regulated financial institutions,” Nussle wrote.

He added, “We believe effectively shutting down overdraft services would unnecessarily limit credit unions’ ability to assist their members and is ill-advised.”

An official from the National Association of Federally-Insured Credit Unions agreed.

“Credit union members who choose to use a courtesy pay or overdraft protection program do so willingly and with full disclosure of the program’s costs and features,” Brad Thaler, NAFCU’s vice president of legislative affairs, wrote in a letter to the Senate committee last month.

He said that if overdraft programs were eliminated, “this would lead to an increase in declined debit transactions and bounced checks, which would then lead to negative credit reports and more consumer harm and confusion.”