As if credit unions don’t have enough to worry about with the possibility of the creation of a new regulatory agency, they could also have to fight efforts to limit overdraft fees and to allow bankruptcy judges to rewrite the terms of mortgages.
The House Financial Services Committee is scheduled to consider legislation creating a Consumer Financial Protection Agency on Sept. 30, though a revised draft of the measure hadn’t been released as of press time. The panel delayed consideration of the original bill because of widespread opposition from financial services trade groups. CUNA and NAFCU don’t want to kill the measure but want to limit its scope.
Lawmakers haven’t announced when the overdraft and bankruptcy measures will be taken up or whether they will be separate bills or part of a larger measure.
On overdraft, Rep. Carolyn Maloney (D-N.Y.) has introduced legislation that would place overdraft protection programs under the Truth in Lending Act. The measure would: require credit unions and banks to attain customer consent before providing protection, a so-called “opt-in” requirement; ban credit unions and banks from shifting the order of transactions to increase the frequency of overdrafts; and require credit unions and banks inform consumers if a transaction could trigger an overdraft and give them a chance to cancel the transaction.
Senate Banking Committee Chairman Christopher Dodd (D-Conn.) and panel member Charles Schumer (D-N.Y.) plan to introduce a similar measure in that chamber, though they haven’t unveiled the details. Schumer said earlier this month that he hopes to include a provision mandating that fees be proportional, based on the amount of the overdraft, which is not in Maloney’s bill.
CUNA and NAFCU contend the opt-in requirement would add to credit unions’ regulatory burden and instead prefer an opt-out provision. They also express concern that placing overdraft protection programs under the Truth in Lending Act would cause fees to be treated as finance charges, thus resulting in the annual percentage rate exceeding 18%, thus violating the federal credit union usury ceiling.
Credit unions and banks rely on overdraft fees as a major source of revenue.
In 2008, credit unions made $6.6 billion in overdraft fees and $6.4 billion in 2007, according to data compiled by Moebs Services, a Chicago-area economics research and consulting firm, which offers overdraft programs.
Mike Moebs, the firm’s president, told Credit Union Times that 60% of credit unions had overdraft net revenue greater than their net income. He said the median fee for overdrafts at credit unions is $25, and the median cost to the credit union is $13. But the Maloney bill could cut the fee on transactions to $4.50.
He estimated that 2,000 credit unions and 1,000 banks could close if the legislation passed “because they couldn’t make up the revenue fast enough or reduce expenses adequately to stay in business.”
NAFCU Executive Vice President for Government Relations Dan Berger said because of the usury law, federal credit unions would be disproportionately affected and many of their members would leave and take their business to other financial institutions.
By contrast, consumer groups say the measure and the new agency to regulate consumer financial products are needed to limit the greed of financial institutions and help consumers keep more of their money.
The Consumer Federation of America also released a survey showing that 85% of respondents want banks to be required to disclose, on the ATM machine, when a withdrawal will overdraw an account so that they can avoid the overdraft and the fees that go with it.
House Financial Services Committee Chairman Barney Frank (D-Mass.) has said he would like to include a provision on allowing judges to rewrite mortgages in the regulatory restructuring bill that is currently moving through Congress.