Feds Approve New Bounce ProtectionGuidelines

WASHINGTON - (02/21/05) -- Federal regulators, including NCUA,issued new guidelines Friday on bounce protection programs thatinclude best practices for marketing and disclosures and monitoringfor safety and soundness. The regulators' guidelines include:prominent disclosure of fees; avoid encouraging poor accountmanagement in order to boost overdraft fees; and providing a clearexplanation of the voluntary nature for the increasingly popularprograms, adopted by hundreds of credit unions over the past twoyears. But a leading consumer advocacy group, the Center forResponsible Lending, founded by Self-Help CU, criticized the newguidelines almost immediately because the guidelines are simplyvoluntary in nature and do not require lenders to disclose theannual percentage rate on bounce fees, some of which can amount to1,000%. The group cited a $20-to$35 bounce fee applied to an $80overdraft, which can exceed a 1,400% rate when a customer takesseven days to pay. The consumer group has been lobbying federalregulators to disclose bounce fees as loans, which would requirethat the annual rates be disclosed the same way lenders arerequired to disclose loan rates. The group urged that regulatorstake up more stringent guidelines and adopt regulations in order toenforce them.