Overdraft Protection Opens Internal CU Debate

WASHINGTON – In a move threatening to open a debate within the credit union movement, the credit union-backed Center for Responsible Lending is expected to release a study today showing that overdraft protection fees charged by credit unions and banks exceed the amount of money credit unions and banks lend to cover actual overdrafts. With thousands of credit unions now offering some kind of overdraft protection, the issue could embarrass credit unions on Capitol Hill. The Center, an affiliate of Self Help CU, will also join Rep. Carolyn Maloney in calling for a move to disclose all overdraft protection fees as part of the Annual Percentage Rate. An hour later, a credit union executive testifying before Maloney’s Financial Services Subcommittee will urge Congress to consider other options to help unwary consumers. According to advance copy of her testimony, Mary Cunningham, president of USA FCU who is representing CUNA, will tell Congress that to bring overdraft programs under the Truth in Lending Act could prevent many credit unions to offering the product because the fees will exceed NCUA’s 18% interest rate caps for all credit union loans. Cunningham is expected to propose either: allowing NCUA to exempt overdraft protection fees from its 18% interest rate cap; amending Truth in Lending to define overdraft protection fees as a service fee, rather than a finance charge; or requiring only a portion of the fees that exceed the normal NSF fee to be counted as a finance charge.