Regulators’ Focus On Overdraft Fees Intensifies

NCUA unveils plan for reviewing overdraft programs in 2023 as advisory firm report takes aim at fairness of fees.

As the NCUA prepares to examine credit union overdraft policies, a financial advisory company is warning both credit unions and banks that they had better be prepared to address two issues—the fairness of fees, and how they will find other revenue sources if those fees are limited.

“An argument can be made for specific overdraft fees—but banks and credit unions should be able to provide documentation that a policy is in the best interest of customers and members,” the firm Strategic Resource Management (SRM) said in a new report that anticipates what issues the CFPB may be attacking in 2023.

NCUA Reveals Plans to Address Overdraft Programs

The CFPB is not the only agency currently considering overdraft issues.

In a webinar on their supervisory priorities held on Tuesday, NCUA officials outlined their own plans to examine overdraft programs this year.

Ernestine Ward, the NCUA’s division director for consumer compliance policy and outreach, said the agency will concentrate on credit unions with assets of at least $500 million. She added that issues such as member statements and disclosures, website ads and settlement processes will be examined to make certain they are easily understood.

NCUA board Chairman Todd Harper has said that the agency could issue a proposed rule in 2024 based on the information gathered this year.

Inside the SRM Report

In its report, SRM said that the focus on overdraft fees is having an impact—service charges for deposit accounts at banks dropped by 7.7% in the third quarter of 2022 compared to a year earlier, while fee income at federally chartered credit unions fell by 12.7% during the same period.

The firm also recommended that credit unions and banks attempt to simplify and rationalize their fee structures.

“An argument can be made for specific overdraft fees—but banks and credit unions should be able to provide documentation that a policy is in the best interest of customers and members,” the report states.

Additionally, the company noted that the sheer reduction or elimination of fees will unavoidably create a revenue gap, but that the “inconvenient truth” is that financial institutions must identify other revenue sources or cut costs to make up the difference.