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Written by Cyndie Martini
on June 09, 2016

The Consumer Financial Protection Bureau has been working to improve overdraft programs for some time now.

The first move was made in 2010, when credit unions and banks were required to give consumers the choice to opt into the service or decline using it. However, further research has brought additional concerns to the bureau. Most notably, overdraft fees represent a large portion of the revenue created by consumer checking accounts.

For the financial institutions that participated in the CFPB's research, about 61 percent of their revenue came from overdraft fees. A study by the Center for Responsible Lending also found that consumers pay about $14 million in overdraft fees every year. When non-sufficient funds are included in the mix, the total amount paid annually is closer to $17 million.

Information like this concerns the CFPB, which believes more could be done to help consumers use their cards responsibly and avoid overdraft and non-sufficient funds fees. In light of this concern, the bureau has stated that it will work toward creating new legislation regarding overdraft programs.

Credit unions speak out

While any rulemaking would be done with the well-being of consumers in mind, Carrie Hunt, executive vice president of the National Association of Federal Credit Unions, has spoken out against the idea.

Hunt explained in a letter to CFPB Director Richard Cordray that credit unions generally act with the consumer's best interest in mind, and that increased regulations could have a negative impact.

"As member-owned not-for-profit cooperatives, credit unions consistently strive to provide their members with financial products and services designed to help each member achieve their individual financial needs and goals," Hunt wrote. "To that end, credit unions have a vested interest in educating their member-owners on overdraft terms and conditions in addition to working closely with those members to resolve any disputes or concerns."

Hunt pointed out that feedback from credit union members most often showed overdraft programs in a positive light. After the Federal Reserve required that financial institutions only employ overdraft programs after a consumer gave consent to it, surveys showed that between 60 and 80 percent of consumers chose to utilize the service.

Hunt also noted that most credit unions offer a wide range of alternative products:

  • 83.9 percent offer an overdraft line of credit
  • 61.3 percent provide a linked savings or money market accounts
  • 22.6 percent offer short-term, small amount loans

Hunt went on to say that members have come to rely on the service, and many would be upset should regulations begin to restrict the service's functionality. She cited instances when members complained when an overdraft protection did not go into effect, demonstrating the fact that people do feel more comfortable using their cards knowing they are protected.

"Credit unions are unique and their track record as good actors within the financial services industry proves they should not be grouped together with entities that the Bureau seeks to restrict," she said.

According to the CFPB, the bureau is continuing to research the topic and has begun consumer testing initiatives to gain further insight into the opt-in process.


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