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 as toothless because the guidelines are voluntary, andthey do not require lenders to disclose the annual percentage rateon bounce fees, some of which can amount to 1,000% APR. The groupcited a $20-to-$35 bounce fee applied to an $80 overdraft, whichcan exceed a 1,400% rate when a customer takes seven days to pay.The consumer group has been lobbying federal regulators to disclosebounce fees as loans, which would require that the annual rates bedisclosed the same way lenders are required to disclose loan rates.The group urged that regulators take up more stringent guidelinesand adopt regulations in order to enforce them.