LAKE BLUFF, Ill.-The new Consumer Financial Protection Bureau overdraft study signals that it's time CUs make sure their OD pricing and policies are fair, clearly communicated and not deceptive.
The advice from Michael Moebs, economist and CEO at Moebs $ervices, follows the release last week of a CFPB study on overdraft practices at some of the biggest banks in the country. The study did not look at credit union overdraft pricing. It also did not, as NAFCU noted in its analysis, offer any recommendations on what rulemaking may occur in the future.
The CFPB study indicated that despite regulations enacted in 2010 aimed at capping OD abuse, banks are still gouging consumers with high overdraft fees and have confusing and inconsistent OD policies. Moebs said comments from CFPB Director Richard Cordray following the study indicate the agency may take action against banks for unfair, deceptive, or abusive acts or practices.
While the CFPB does not have enforcement powers over credit unions, it can make rules that impact CU overdraft pricing and policies. But what concerns Moebs more than a trickle-down to CUs of new OD rules is that NCUA may eventually take the CFPB's lead and crack down on CUs it believes employ unfair or deceptive OD practices.
The vast majority of credit unions, stated Moebs, offer OD programs that have members' best interests in mind. CU overdraft pricing, too, is below the big banks, according to a Moebs $ervices study earlier this year. Banks with more than $5 billion in assets average $35 per overdraft, while banks below $100 million charge $25. CUs with more than $5 billion in assets charge $25, the same fee as credit unions below $100 million-$29 is the median price for overdraft fees in the U.S. among all FIs.
What's Lacking
"Let's stay in front of the eight ball-full disclosure, great clarity of communication, and quickness with decisions," urged Moebs. "What I mean by quick decisions, for example, is if members' accounts are overdrawn tell them immediately, first thing in the morning. Use text messaging, e-mails and automatic alerts."
If members ask questions, make sure the CU answers them immediately with well-trained staff, said Moebs. "And make sure your communications, no matter what form, are simple. Dumb this down to the junior-high level and give members everything you know. If credit unions show great transparency, NCUA may not feel the need to focus on credit union overdraft programs."
The CFPB study, and Cordray's comments following its release, indicate to Moebs that any breathing room many FIs thought they may have before the CFPB turns its full attention to overdrafts may be slipping away. Amid a great deal of concern in the financial services industry that the CFPB would regulate overdrafts, in February Cordray announced the agency would delay its attention here for a year or two.
"I don't think that delay will be as long now," said Moebs, who also believes the director could be feeling pressure from Washington to focus on overdrafts.
The CFPB study arrives at a time when bank regulators have proposed a change to call reports to require banks to break out overdraft fee income. Consumer groups have also been pushing for more scrutiny of overdraft protection programs with a recent PEW OD study calling for more transparency.
