I just wanted to offer a note of appreciation for Paul Gentile's Oct. 10 column and its well-balanced evaluation of the overdraft protection issue for credit unions.
In my former life as both a regulator and credit union CEO, I have seen first hand both the consumer benefits of a properly managed and fully disclosed overdraft "bounce protection" program and the essentiality of appropriately priced fee income to the safety and soundness of America's credit unions.
Gentile's column recognized the significant
and crucial difference between a best practices "bounce protection" program and the programs at that handful of institutions who engage in overdraft protection abuse. I fear that an overreaction to the latter could provide unintended negative consequences for the former.
From the consumer viewpoint, he becomes a loser if his "bounce protection" is no longer available on his checking account. If an overreaching overdraft abuse bill were to become law and financial institutions were to back away from offering such
programs because of costly regulatory burden, the consumer truly loses.
Why? Well, without "bounce protection," the consumer still pays a NSF fee when he occasionally writes an NSF check because he runs out of money before he runs out of month. But he pays more fees as well. In addition to his NSF fee to the financial institution, he gets to pay another costly merchant fee or punitive late fee to the vendor to whom he wrote the NSF check.
Consumers use "bounce protection" programs because they are valuable to them in an emergency situation, and it avoids their need to go to a payday lender or check cashing outlet and get caught in a cycle of dependency. Many consumers will be quite upset if they learn that a well intentioned Congress has, in an attempt to assist them with "pro-consumer" legislation, now left them to pay double fees, face exorbitant late charges and face personal embarrassment when they have to go the store on Sunday to re-claim their NSF check that would have been good next Tuesday when their payroll posts to their account.
We don't need to hear our members say "if only…if only my credit union had helped me by honoring my check. They know when my payroll comes in. Next time I'll go to the check cashing outlet on the corner and avoid this hassle. The heck with my credit union."
Bounce protection has a consumer benefit if administered properly. And it is important for financial institution stability as well.
From my credit union regulatory experience, I would estimate that the capital position of credit unions has been enhanced over the past five years more by the fees from well-administered overdraft protection programs than from any other single source. Losing this program could cause safety and soundness concerns for many credit unions because, since credit unions can only build their capital from retained earnings, the loss of a well received
earnings generator like "bounce protection" could be potentially devastating.
While serving as NCUA Chairman, I was vice chairman of the Federal Financial Institutions Examination Council. The FFIEC agencies have studied this overdraft protection issue thoroughly and issued over the past two years Joint Guidance and Best Practices that, if given the opportunity to work without statutory override, can strengthen these programs and eliminate the few areas of abuse that might have generated the recent legislation. I would recommend that Congress allow the FFIEC agency guidance to work and not create a statutory "solution" that will likely cause many unintended problems for consumers and financial institutions alike.
Again, thanks for taking a well-balanced approach to this important issue.
Dennis Dollar
Principal
Dollar Associates, LLC
Birmingham, Ala.
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