Credit Unions and Other Depositories Dodge Overdraft Bullet for Now
WASHINGTON -- After delaying markup of the Consumer Overdraft Protection Fair Practices Act (H.R. 946) by one day last week, the House Financial Services Committee has postponed the markup indefinitely.
The credit union trade associations have opposed the bill because it would place overdraft protection accounts under the Truth in Lending Act and require the disclosure of fees assessed as an APR, eliminating credit unions from offering the product because of the 18% usury cap in the Federal Credit Union Act. Federal regulators had previously ruled that overdraft protection is an extension of a deposit account and therefore not subject to TILA; the legislation as written, would treat the product as a loan.
The postponement was reportedly due to increasing opposition to the bill by committee members, according to CUNA. NAFCU Director of Legislative Affairs Brad Thaler observed, "I think there's a lot of concerns that are out there, both in the credit union community and the financial services community."
On the eve of the expected markup Sept. 26, CUNA had negotiated with the bill's sponsor, one of CURIA's original co-sponsors Carolyn Maloney (D-N.Y.), a couple of amendments to make the bill more palatable for credit unions. USA Federal Credit Union President/CEO Mary Cunningham had testified on behalf of CUNA on the bill earlier this year.
Congressman Brad Sherman (D-Calif.) was expected to make an amendment to exempt credit union overdraft fees from the 18% usury ceiling. Without this change, the bill would effectively eliminate overdraft protection from credit union services. According to CUNA, Maloney said this situation was an unintended consequence of her legislation.
NAFCU President/CEO Fred Becker wrote committee leadership urging the lawmakers to vote against the legislation unless changes more substantial than those proposed in the manager's amendment were included. As a practical matter, he pointed out, "Because credit unions cannot determine when a member will pay back the overdraft line, it is impossible to calculate the APR when the account is overdrawn, meaning every overdraft transaction would potentially violate the usury ceiling. This bill would likely lead to many credit unions dropping these programs, forcing credit union members to take checking and debit accounts elsewhere if they desire these services."
Additionally, it had been anticipated that Sherman and Maloney would likely offer an amendment to extend the effective date from 90 days
to 270 days.
These fixes covered two of CUNA's objections. However, despite full-court-press lobbying, CUNA was unable to obtain a change in the treatment of the fees in APR format, leaving the group with no option but to oppose the legislation even in the form it was expected to take after amendment. In a letter prior to the scheduled hearing, CUNA Senior Vice President for Legislative Affairs John Magill wrote, "CUNA still has an issue with considering this service fee as part of the ARP, because we have longstanding policy that overdraft protection is not a lending product. We believe that alternative disclosures would actually be helpful to consumers, such as the disclosure of the cost of using the bounce protection program versus the cost of the institution's bounced check (NSF) fee and line
"Furthermore," NAFCU's Becker said in his letter, "the current 'opt-in' provision of the legislation would be a significant and costly regulatory burden on institutions that would have to go out and contact their members, who already enjoy this service, and get an affirmative response from them to continue a member benefit that they already have. Amending this to an 'opt-out' provision would at least reduce this burden, while still giving the
consumer an option to avoid any charges with
Thaler explained that House Financial Services Committee Ranking Member Spencer Bachus (R-Ala.) had prepared a substitute bill that he did not have the chance to offer that would have considered overdrafts under Truth in Savings rather than TILA, which would have maintained some of the same consumer protections while creating less of a burden for financial institutions. NAFCU did not take an official position on this bill and he could not detail it since it was not introduced.
However, Thaler said, "Whether or not they can get together and craft a package that can get wide bi-partisan support remains to be seen."
CUNA Vice President of Legislative Affairs Ryan Donovan clarified, "Ending abusive practices, almost all of which do not occur in the credit union movement, is an admirable goal. The way that the chairwoman is approaching this is not something that we can support."
Both groups remain in close contact with Maloney and other lawmakers involved. "It could come up as early as next week or it could be next year,"
Thaler said of the markup. "There's still interest in this issue."