In a study released this week, Pew Charitable Trust makes sweeping conclusions about overdraft services for all consumers based on a study that looks at the practices of a small number of hand-picked banks.
The report, titled “How a Set of Small Banks Compares on Overdraft,” analyzes overdraft programs, fees and terms at 45 banks. Despite not studying credit union overdraft services or credit union members use of them, Pew includes recommendations that impact the choices of credit union members.
“The study ignores or misunderstands how certain regulations apply to overdraft services. It also fails to consider how credit unions differ from banks when offering overdraft services, and assumes they are of little to no benefit to consumers,” said Ryan Donovan, CUNA chief advocacy officer. “Americans are tired of D.C. lawyers telling them what they do and do not need. Studies like this feed the enmity consumers have toward Washington and, in this case, threaten the availability of products that meet consumer needs in the market.”
A July 2015 CUNA survey of consumers found that 72% of all credit union members and 63% who have used overdraft protection (ODP) in the last year prefer to have consumers “make their own choices about overdraft protection and continue to have options available without new federal government restrictions.”
Pew also recommends that regulators should enable banks and credit unions to offer affordable small-dollar loans in place of expensive overdraft penalty programs.
“We agree with Pew that credit unions should be able offer small-dollar loans, but disagree that they need one-size fits-all regulations addressing a nonexistent problem with credit union small-dollar lending, to serve their own members,” Donovan added. “Credit unions already offer consumer-friendly, small-dollar loans, and arbitrary policies constricting their ability to do this make it more difficult for credit union members to be able to continue to have options for safe and affordable credit.”
The Consumer Financial Protection Bureau (CFPB) has indicated it will begin pre-rule activity on overdraft products and services starting in early 2017, with additional research focusing on smaller financial institutions to take place.
CUNA and state credit union leagues have met with the CFPB a number of times, most recently in November, to educate the bureau about how consumers use overdraft, and why many prefer and choose to use the service.
For more detail, see CUNA's Removing Barriers Blog.