LAKE BLUFF, Ill.-If banks and CUs don't want the Consumer Financial Protection Bureau regulating overdraft pricing, they should clearly disclose their overdraft charges to consumers and members, as well as their process for how they assess the fees, insists Michael Moebs.
The economist and CEO of Moebs $ervices added that all FIs, too, should begin developing methods, such as text alerts and automated voice messaging, to communicate with individuals within hours of their checking accounts going negative.
Moebs told Credit Union Journal that he believes banks and credit unions have to take these steps now to demonstrate to the CFPB they are looking out for consumers' best interests when it comes to overdrafts. The CFPB recently stated it will soon look closely at financial institutions' overdraft practices.
"The days of not informing the member or the customer about overdrafts are gone," said Moebs, stating that consumers must be communicated to clearly, in "common sense, junior high language. There has to be much more transparency, clarity, and speed around overdraft communications."
Speed, perhaps, is most important, noted Moebs. "Banks and credit unions need to say to people, if you want me to pay the transaction, I have to have your cell number to text you, your e-mail address, and your home phone number."
Three Factors At Work
Consumers gaining a stronger understanding of overdrafts and FIs notifying consumers quickly when accounts go negative will go a long way toward addressing a growing "contentiousness" with overdraft fees among Congress, consumer advocate groups, and consumers themselves, which is what's driving the CFPB's interest in overdrafts, said Moebs.
According to Moebs, three factors are causing this stir: a reduction in the time it takes for checks to clear, an increase in debit card usage and volume, and sluggish economic conditions.
As float has steadily declined since 2003, debit card usage has gone from fewer than nine billion transactions in 2000 to almost 48 billion today, a compound increase of more than 16% per year, pointed out Moebs.
The $39 Cup of Coffee
"This decline in float combined with the explosion of debit cards, increased the speed in which funds flow out of consumer checking accounts. This dramatic shift in payment and transaction processing has acted like a silent sleuth on consumers," Moebs said. "With these variables playing out against the backdrop of a sluggish economic recovery-which has reduced checking account balances and therefore the cushion many people used to have in their accounts-consumers found themselves caught in a perfect storm."
Making matters worse are many mega-banks switching to high-to-low transaction posting. "That has been detrimental," said Moebs. "It truly looks like they are being excessively greedy."
Besides disclosing to members and consumers their overdraft pricing and process, banks and CUs should also list that information on their call reports, insisted Moebs "Their reports should show how much overdraft income they are making."
Consumers get angry, for obvious reasons, when they discover they paid $39 for a cup of coffee, noted Moebs. "When a consumer buys a $4 latte and gets hit with a $35 fee the stark reality of instant payment, no float, and no money become very genuine to the 67% of overdraft consumers who unintentionally overdraw their checking account. Regulating the price of overdrafts is not the solution to help these consumers avoid the harsh realities of the marketplace. More information and greater clarity of message is what is needed."
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