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As Conversations Continue on Overdraft Strategies, Consumer Protection Remains a Consistent Theme

Thu, May 23, 2013

Columbia, Maryland

While the Consumer Financial Protection Bureau (CFPB) continues to review the information it received from financial institutions and consumers regarding how overdraft programs impact account holders and smaller financial institutions, efforts to thwart programs which utilize practices that are harmful to consumers continue.

In March, legislation was re-introduced in Congress which would cap overdraft fees, impose a limit on the number of overdrafts that a member could incur per year, and ban the practice of manipulating the posting order of consumer transactions. This is the latest attempt by legislators to impose restrictions on overdraft programs in order to make improvements "in the area of consumer disclosures to help people avoid multiple overdrafts," according to Rep. Carolyn Maloney, sponsor of the legislation.

On the legal front, a Florida judge recently approved a $62 million settlement against TD Bank resulting from a multi-district lawsuit by customers alleging the bank re-ordered debit card transactions to generate maximum overdraft fees.

Transparency and full disclosure are essential for effective consumer financial products.

As regulators, lawmakers and consumer advocates continue to push for more transparent, user-friendly financial products, it is incumbent upon financial institutions to make the necessary adjustments in their product offerings and procedures to remain compliant and competitive.

As a leader in profitability and performance-improvement programs for more than 30 years, JMFA continues its efforts to promote responsible, consumer-friendly financial products that provide valuable services to members and performance improvement opportunities for credit unions.

In our efforts to reinforce the important role of overdraft services, we have provided the CFPB with recommendations – based on feedback we have received from our clients – that seek balance in overdraft regulations, based on the following:

  • Full disclosure – members should be provided with clear and conspicuous information as to the terms of the services that they are receiving;
  • Consumer choice – members should have a choice as to whether or not to receive overdraft services;
  • Fair practices – financial institution practices should not artificially inflate or manipulate member costs;
  • Fair regulation – regulation should not artificially increase member costs or make it difficult for them to obtain services; and
  • Fair and transparent markets – where overdraft services compete with other services, the regulatory scheme for overdraft services should not encourage consumers to use less-regulated providers of financial services.

"We believe that the information we shared with the Bureau – regarding the value of overdraft programs for consumers – will play an important role as it continues to study this matter," said JMFA Chairman/CEO John M. Floyd. "The feedback we received reinforces the important human aspect of overdraft services – it's not just a back-office procedure, rather a valuable service that benefits consumers, whether they incur overdrafts only occasionally or on a more regular basis."

Make a decision to move your credit union forward.

While CFPB decision-makers and Congress continue to sort through different points of view at the highest levels, can your credit union afford to wait to implement a fully-transparent, consumer-friendly overdraft program that provides a much needed service for your members?

JMFA is a preferred provider for MDDCCUA and CUNA Strategic Services.

Learn how your credit union can put a compliance wall around your overdraft solution and diminish the risk of legal scrutiny and regulatory interpretation during your next compliance exam. Don't miss the session, "Gaining Clarity in an Environment of Regulatory Uncertainty," during the MDDCCUA's Annual Meeting & Convention next month. This session presented by Cheryl Lawson, JMFA's Executive Vice President of Compliance Review will be Wednesday, June 12th 10:15-11:15 am.