A change in the composition of the National Credit Union Administration board has given new life to a proposed overdraft rule that is favored by some credit unions, but leaves other institutions and consumer activists begging for more. .
If finalized, the measure would remove the hard limit of 45 days for members to make a deposit or get a line of credit to cover a negative balance. Instead, the proposal would require credit unions to adopt written policies to “establish a specific time frame that is reasonable and universally applicable.”
The presumption of many observers is that credit unions would extend the grace period, perhaps to 60 days. This would give consumers more time to avoid overdraft fees and could help credit unions reduce their negative account write-offs. However, consumer groups and some members of the industry would like the NCUA to take more action to reduce overdraft fees.
The proposal was submitted for consideration in May 2020, but was tabled after then-president Rodney Hood was the only member of the three-person group to vote in favor of it.
Hood couldn’t get a second on the motion of either of the other two board members – J. Mark McWatters or Todd Harper. (McWatters and Hood were nominated by Republicans, with Harper the only Democrat.)
But after McWatters resigned in November and was replaced by fellow Republican Kyle Hauptman, the issue resurfaced at the December 17 board meeting. Hauptman backed the plan and the council voted 2-1 to release it for public comment.
Harper, who was later appointed chairman by President Joe Biden, has been a strong supporter of tougher consumer protection requirements for credit unions. He said the overdraft proposal “missed a tremendous opportunity to provide substantial and real relief” – in other words, he felt it should have gone further to protect members from overdraft fees.
Some credit unions who are in favor of the proposal say it would provide additional relief to members affected by the pandemic and that alone is reason enough for the NCUA to give credit unions more flexibility.
But the plan would also be better aligned with interagency guidelines adopted by the NCUA on overdraft protection programs which suggest a maximum of 60 days before an overdraft is charged.
James Pack III, director of member services for the Coastal Federal Credit Union in Raleigh, North Carolina, said credit unions should be allowed to determine the specific timeframe that would be both reasonable and enforceable for their members deposit funds or obtain a loan to cover overdrafts.
The institution with $ 3.8 billion in assets also said negative balances should be charged within 60 days, as any arrears longer than that could be considered uncollectible.
In a review of accounts debited in 2020, the proposal would have prevented 244 transactions from being debited because the amount owed was paid within the additional 15 days, he said.
âWe are contacting our members within two weeks of an overdrawn account for any reason, including overdraft fees. The proposed change to the 45-day requirement will not only be beneficial during the coronavirus pandemic, but when it is finally finished, âhe said.
The National Association of Federally Insured Credit Unions said the 45-day deadline ultimately hurts members the most by limiting the ability of federal credit unions to work with them.
“No consumer protection argument in support of a 45-day deadline, as opposed to a 60 or 90-day deadline, has been raised, and there is in fact no political reason. to do. In addition, there is no security and the concern for soundness specifically mitigated by the 45-day deadline as opposed to other reasonable deadlines, âthe group said in its comment letter.
But some consumer groups and credit unions have opposed the proposal and are calling for it to be reconsidered.
In a joint letter, the Center for Responsible Lending and the $ 1.6 billion-asset Self-Help Federal Credit Union in Durham, North Carolina, said the NCUA proposal provided no evidence that ‘it would achieve its stated goal of providing relief to members of credit unions. Rather, they would like it to go further and exclude overdraft fees for an extended period.
âDuring a health and economic crisis, it is even more important that the agency take a ‘do no harm’ approach. Instead, this proposal undermines and contradicts federal relief efforts. To avoid causing net harm to people. members, any final rule must prohibit additional overdrafts, overdraft fees and insufficient fund charges during the period beyond 45 days, âthe groups wrote.
Thomas FitzGibbon, Jr., chief executive of Artisan Advisors, said any overdraft policy adopted should ensure that the practices are not predatory and therefore place an additional financial burden on members.
The proposed rule does not specify what the fees would be limited to and leaves it up to individual credit unions to set overdraft fees and dollar overdraft limits, he said.
In the 1990s, some banks offered âoverdraft advantageâ and âoverdraft privilegeâ programs that solicited and, in some cases, pre-authorized access to the program. This resulted in significant backlash from consumer advocates as the programs resulted in excessive fees and check processing procedures that allowed the bank to charge more fees.
âThe devil is in the details of the credit unions as was the case with the banks which adopted the program to cover overdrafts over longer periods and larger amounts,â he said.
FitzGibbon said credit unions will need to consider issues including whether their new policies could result in higher than expected operating losses and what the reputational risk could be if the program causes problems with their members.
The comment period for the proposal ended on February 16, and a spokesperson for the NCUA said the agency was reviewing the comments received.