Changing market conditions and renewed interest by regulators to address products and procedures perceived as harmful to consumers have recently fueled sweeping changes in some overdraft strategies. For undisclosed programs and those with fees that have steadily escalated over the years, such changes may be necessary as regulators attempt to rein in overdraft practices that run counter to their calls for transparency. The news from some of the nation’s largest banks making major modifications doesn’t mean that overdraft services aren’t beneficial to consumers. It just means that some program strategies are out of line with regulatory expectations and what consumers need. This fact was punctuated recently in comments by Acting Comptroller of the Currency, Michael J. Hsu, who said, “Limiting overdrafts may limit the financial capacity for those who need it most.” In fact, in a joint letter to the CFPB, industry trade organizations representing both banks and credit unions have requested the agency to study consumers’ preferences regarding overdrafts, including a list of areas that should be investigated. Sweeping changes can stir up unexpected consequences Community banks should absolutely be re-evaluating their overdraft approach to ensure they are doing right by the consumers they serve. However, making changes without the right direction and resources can create difficulties for account holders who trust their financial institution to “have their back” when they have liquidity needs. For instance, eliminating overdraft fees may sound appealing, but what happens when a transaction exceeds a customers’ balance? Is it covered or returned? If it is returned — for a mortgage, rent or utility payment — will What’s the Real Motivation Behind Sweeping Changes to Overdraft Services? Avoid confusion and criticism with full disclosure and reasonable fees By John Cohron JMFA Chief Executive Officer coloradobankers.org 14
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