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More overdraft regulations?

By Marcie Geffner · Bankrate.com
Tuesday, July 17, 2012
Posted: 6 am ET

Should the federal Consumer Financial Protection Bureau, or CFPB, push for new regulations to control how banks handle their customers' checking account overdrafts?

In furtherance of that debate, the CFPB has requested information from financial institutions and the public. The Credit Union National Association, or CUNA, has responded in a 2,000-word comment letter.

Not surprisingly, CUNA isn't in favor of new regulations that would affect how credit unions structure their overdraft programs, which "cover" the shortage when a consumer spends or withdraws more money than is available in his or her checking account.

"While certain regulatory improvements regarding overdraft programs would be useful for financial institutions and consumers alike," the letter stated, "CUNA does not support broad new regulation of overdraft programs that would limit the flexibility of credit unions to structure their programs appropriately, including the regulation of overdraft fees."

Rather than outline any such improvements, CUNA urged the CFPB to be aware of differences between banks and credit unions and recognize that credit unions' services "do have associated costs."

The organization also pointed out that credit unions have limited ways to accumulate capital other than through fees and that credit unions are already "reeling" from their current regulatory requirements.

CUNA also seemed quite worried that the CFPB request for information didn't define overdraft protection. In light of that perceived oversight, the organization applied its own definitions, differentiating between overdraft protection/transfer programs in which funds are transferred from a savings, money market or other type of account to cover a consumer's overdraft, and overdraft privilege programs in which the credit union's own funds are used to cover the consumer's overdraft.

The CUNA letter also summarized the results of a survey of 543 credit unions that found nearly all of them offered some form of overdraft program. Key talking points included disclosures of overdraft policies, communications when an overdraft occurs, limits that prevent excessive overdrafts (variously defined), and the order in which transactions are processed.

Whether the CFBP will be influenced by CUNA's point of view remains to be seen.

Follow me on Twitter: @marciegeff

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