Subcommittee Witness: Credit Unions Should Disclose Overdraft Revenue

Advocacy groups NAFCU and CUNA both push back against call for mandatory disclosure of overdraft revenue.

Credit unions should be required to disclose in their call reports how much they have collected in overdraft fees, Aaron Klein, senior fellow in economic studies at the Brookings Institution, testified before a Senate Subcommittee Wednesday.

“No one knows which credit unions are overdraft giants or are engaged in practices harming their customers,” Klein told the Senate Financial Institutions and Consumer Protection Subcommittee.

The Consumer Financial Protection Bureau recently solicited comments on overdraft penalties and other charges, which the bureau called “junk fees.” As a result of criticism of the fees charged by banks and credit unions, some financial institutions have either decreased or eliminated them entirely.

Credit Unions Currently Exempt from Disclosing Overdraft Revenue

Klein told the subcommittee all banks with assets of more than $1 billion must disclose in their call reports information about various fees, including overdraft charges. He noted, however, credit unions are not required to disclose that information.

He further claimed “fixing the overdraft problem” is one of the most important things that can be done to help address the issues facing people who do not use a traditional financial institution to conduct business.

“These fees, which are effectively short-term loans, can be extremely high-cost relative to the small amount of money received by the customer, short-lived in time borrowed, and carry small chance of default,” he said. “As a result, overdraft fees result in nearly pure profit for the bank or credit union.”

Klein also accused regulators of being “asleep at the switch” by allowing credit unions and banks to rely on overdraft for most of their revenue.

Reaction from Credit Union Advocacy Groups

No credit union witness testified Wednesday. However, the Credit Union National Association (CUNA) and the National Association of Federally-Insured Credit Unions (NAFCU) both sent letters to the subcommittee.

CUNA President/CEO Jim Nussle said overdraft protection is a service that allows a consumer to purchase goods when the payment exceeds their available balance.

“We strongly believe credit unions should be allowed to continue working with members to develop customized solutions that help secure their financial well-being rather than Congress adopting wholesale or de facto bans on popular financial services,” he stated.

Nussle added the National Credit Union Administration has identified overdraft programs as a supervisory priority this year, with the data collected being used to undertake a more thorough review of the programs in 2023.

NAFCU Vice President of Legislative Affairs Brad Thaler claimed credit union members who use overdraft programs do so willingly.

“This opt-in requirement gives consumers more control and the overdraft rule’s notice requirements have helped consumers to better understand the cost of overdraft programs,” he said.