WASHINGTON (3/22/13)--TD Bank's account manipulation settlement, which was approved by a Florida judge this week, calls attention to the need for financial institutions to be aware of chaninging rules and regulations addressing overdraft practices.
The $62 million settlement follows a multi-district legal action that was brought by customers of TD Bank. The customers alleged that TD Bank re-ordered some of their debit card transactions to extract maximum overdraft account fees. Plaintiffs claimed the bank brought in hundreds of millions of dollars as a result of this practice.
The Consumer Financial Protection Bureau has been examining overdraft issues, and the order in which institutions pay items from a consumer's checking account. The Credit Union National Association reminds policymakers to consider that reasonable overdraft protection plans help assure consumers will have access to funds when they need them.
CUNA in a comment letter sent last year underscored that 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. CUNA encourages the CFPB to note this difference as it proceeds to write regulations governing overdraft protection programs.
CUNA Senior Vice President for Compliance Kathy Thompson said the bureau has certainly taken a look at a 2012 checking study by the Pew Charitable Trusts.
That study, which has been referenced publicly by CFPB officials, 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.
The Pew study called for:
- A disclosure box for checking accounts;
- Better disclosures on overdraft options;
- Certain overdraft fee limits; and
- Deposits and withdrawal postings that do not maximize overdraft fees.
Overdraft fees have also been addressed on the legislative front in recent days. Reps. Carolyn Maloney (D-N.Y.) and Maxine Waters (D-Calif.) on Wednesday introduced the Overdraft Protection Act of 2013, which would cap overdraft fees, impose a limit on the number of overdrafts that a member could use per year, and require financial institutions to post credits and debits in a particular order. CUNA said the bill "seems to address a problem that doesn't exist in the credit union system." (See March 21 News Now
story: CUNA: Overdraft Bill Addresses Problems That Don't Exist At CUs.)