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Interim Controller calls for reform of bank overdraft programs



United States: Interim Controller advocates reform of bank overdraft programs

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In remarks ahead of the 34th Annual Financial Services Conference of the Consumer Federation of America, CCO Acting Controller Michael Hsu identified changes to bank overdraft programs that would benefit low-income people.

Mr. Hsu explained that bank overdraft fees were originally introduced as a way to maintain bank profit levels when interest rates fell, and were only intended for very limited use. Since then, banks and consumers have become increasingly dependent on overdrafts – with banks relying on the fees they generate ($ 15.5 billion in 2019) and consumers, mostly with income. weaker or little or no credit, using them as a method of short-term borrowing that increases their liquidity. Mr. Hsu said bank overdraft fees are disproportionately charged on low-income people.

Mr. Hsu said the goal of regulators should be to improve the “financial health” of people. He argued that the overdraft reform holds the promise of achieving this goal. Mr Hsu said these overdraft reform efforts could include:

  • require a unique “opt-in” to the overdraft program;
  • grant a grace period before charging an overdraft fee;
  • allow negative balances without triggering overdraft fees;
  • provide consumers with balance alerts;
  • provide consumers with access to real-time balance information;
  • link a client’s current account to another account for overdraft protection;
  • collect an overdraft fee on a consumer’s next deposit only after other items have been posted or cleared; and
  • do not charge a separate overdraft fee for multiple transactions in a single day or additional fees when a transaction is re-presented.

Comment Daniel Meade

Acting Controller Hsu’s speech on overdrafts follows CFPB’s recent overdraft announcement. While the timing may be a coincidence, it seems unlikely. The CFPB speech and announcement seems to indicate a coordinated effort by the CFPB and OCC to address what they see as excessive overdraft fees.

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