WASHINGTON (7/2/12)--Because of their cooperative structure, credit unions do not have financial incentives to charge members the high fees that banks frequently do in order to maximize profits for shareholders--the Consumer Financial Protection Bureau (CFPB) should note this difference as it proceeds to write regulations governing overdraft protection programs, according to the Credit Union National Association (CUNA).
In a comment letter submitted to the CFPB Friday, CUNA's Deputy General Counsel Mary Dunn said that a recent study by the Pew Charitable Trusts, which compared the fee practices of the 12 largest credit unions with those of the 12 largest banks, bears out the difference in fee practices. Credit union fees are reasonable and CUNA has urged the agency not to regulate in this area. Dunn cited an April statement from CFPB Director Richard Cordray in which he said the agency does not intend to regulate fees.
The Pew study found in 2011 the median fee charged by credit unions when the credit union covered the item was less than three-quarters of that charged by banks. The median fee charged by credit unions when transferring funds from an account of the member to cover the overdraft was $5, compared to $12 charged by banks, according to the study.
The comment letter noted that CUNA and credit unions are strong proponents of fair lending practices and proper consumer disclosures. In 2004, CUNA developed its policy on overdraft protection programs, which states that "when used appropriately by members, [overdraft protection programs] serve as a valuable alternative to overdrawing share drafts and are fully consistent with the philosophy and principles unique to the credit union system." (Use the resource link to read the complete policy at the end of the comment letter text.)
CUNA asked the agency to be mindful that credit unions offer overdraft programs as a convenience and accommodation for their members and have indicated many members appreciate these services.
Prior to developing its letter to the CFPB on overdraft protection programs, CUNA conducted a survey and over 500 members provided their responses. The survey made a distinction between Overdraft Protection/Transfer programs and Overdraft Privilege programs, even though the agency did not clearly define these terms.
"Reflecting our members' practices, we defined an 'Overdraft Protection/Transfer' program as one in which funds are transferred to the member's checking account from the member's savings, money market, or other type of account to cover the amount of an item that would have otherwise been unpaid. We define an 'Overdraft Privilege' program as one in which the credit union's own funds are used to cover the overdraft."
CUNA found that among credit unions that offer a type of Overdraft Protection/Transfer program, over 80% of respondents indicated that at least half of their members with checking accounts have signed up for one or more of these programs, indicating the importance of these services to those members.
Almost all respondents inform their members of these programs through information included with the disclosures provided at account-opening, as well as by having staff inform members at account-opening.
In addition, roughly two-thirds of respondents have staff inform members of these programs upon being contacted by the member regarding an overdraft that has occurred. These credit unions view this as a critical opportunity for the credit union to inform the member of a lower cost alternative to other forms of overdraft protection.
Use the resource link to read CUNA's full comments.