Acting Comptroller Advocates Reform of Bank Overdraft Programs

In remarks earlier than the Client Federation of America’s thirty fourth Annual Monetary Providers Convention, Acting OCC Comptroller Michael Hsu identified adjustments to banks’ overdraft packages that may profit lower-income people.

Mr. Hsu defined that financial institution overdraft charges have been initially launched as a option to preserve revenue ranges for banks when rates of interest have been falling, and have been supposed just for very restricted use. Since then, each banks and shoppers have turn into more and more reliant on overdrafts – banks counting on the charges they generate ($15.5 billion in 2019) and shoppers, principally with decrease incomes or little to no credit score, utilizing them as a short-term borrowing technique that will increase their liquidity. Mr. Hsu acknowledged that banking overdraft charges are disproportionately charged to lower-income individuals.

Mr. Hsu asserted that the regulators’ objective ought to be to enhance individuals’s “financial health.” He argued that overdraft reform holds the promise of reaching that objective. Mr. Hsu acknowledged that such overdraft reform efforts would possibly embrace:

  • requiring a one-time “opt-in” to the overdraft program;

  • offering a grace interval earlier than charging an overdraft payment;

  • permitting unfavorable balances with out triggering overdraft charges;

  • providing shoppers balance-related alerts;

  • offering shoppers with entry to real-time stability data;

  • linking a buyer’s checking account to a different account for overdraft safety;

  • gathering overdraft charges from a client’s subsequent deposit solely after different objects have been posted or cleared; and

  • not charging separate overdraft charges for a number of transactions in a single day or further charges when a transaction is re-presented.

Commentary

Acting Comptroller Hsu’s speech on overdrafts follows the current announcement from the CFPB on overdrafts. Whereas the timing may very well be a coincidence, that appears unlikely. The speech and the CFPB announcement collectively seem to point a coordinated effort by the CFPB and the OCC to deal with what they view as extreme overdraft charges.

Major Sources

  1. OCC Speech, Michael Hsu: “Reforming Overdraft Programs to Empower and Promote Financial Health”

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