The Independent Community Bankers of America isn’t wild about the consumer credit card and overdraft rules proposed by the Federal Reserve, Office of Thrift Supervision, and National Credit Union Administration. In its 27-page comment on the proposal—one of 56,000 responses filed by last week’s deadline—the ICBA “agrees with the agencies that protecting consumers is important” but challenges the fundamentals of the agencies’ approach.
Under the proposals, banks, thrifts, and credit unions would find their credit card and overdraft business models sharply curtailed. (The proposals are based on the Federal Trade Commission’s unfair or deceptive practices regime, also known as UDAP.) The ICBA contends that this kind of rule-making “instantly creates an unfair playing field,” since the FTC “has not indicated any intention of drafting parallel rules for non-depository entities subject to FTC rules.”
The agencies’ formula would encourage a litigious Donnybrook, according to the ICBA, because “any practices defined as inherently unfair or deceptive under UDAP must have been unfair or deceptive when they took place, regardless of business standards or regulations in place when the transactions occurred. Certainly any UDAP rule will be used in that manner by state attorneys general and the plaintiffs’ bar.”
ICBA’s letter is full of common sense observations. For example, offering customers an opt-out from overdraft protection is fine; requiring a partial opt-out offer “may be sufficiently burdensome and operationally challenging that may community banks will abandon overdraft protection services entirely and simply return or reject any transaction that would overdraw an account.”
The group also warns that some of the proposed restrictions might drive consumers away from depository institutions into the arms of “less heavily regulated and less closely supervised providers, including payday lenders, check cashers and others where applications are likely to be less carefully scrutinized.” That does not sound like the outcome hoped for by the Fed, OTS, and NCUA. Meanwhile, some movers in Congress are starting to push for legislation following the UDAP theme in an effort to make sure the agencies don’t take some of those 56,000 comments too seriously.
