Limiting overdraft programs could harm access to responsible services

CUNA strongly objects to legislation, regulation and other government intervention to restrict the ability of credit unions to offer overdraft protection plans that help members resolve short-term financial difficulties, CUNA wrote to a Senate Banking, Housing, and Urban Affairs Subcommittee. The committee conducted a hearing on overdraft fees.

“Credit unions offer overdraft programs as a convenience and accommodation to a members’ benefit, and members that choose to opt-in often do so for the peace-of-mind these services provide,” the letter reads. “In some cases, the opt-in decision was made precisely for the comfort of knowing that transactions would continue to be processed during an unexpected financial emergency or other cash shortfall.”

CUNA highlights the substantial diversity in credit union overdraft program features, as each institution designs programs to meet the needs of its membership.

“Irrespective of innovations in overdraft, credit unions have a track-record of establishing policies and procedures aimed at assisting members that frequently use overdraft protection,” the letter reads. “When a credit union becomes aware of a member’s frequent overdraft usage, they often attempt to contact the member to address the member’s financial situation and offer financial education support or alternative credit products.”

CUNA also notes:

• The best and least disruptive path forward would be to continue permitting transactions to be processed and encouraging affected consumers to reach out to and work with their local credit union to reduce or eliminate any fees or to consider other low-cost products and services.
• Overdraft protection programs are subject to substantial regulation and oversight, and credit unions are regularly examined for compliance.
• Competition and consumer demand have driven market changes for overdraft protection programs, and many credit unions are exploring new methods to approach their programs and examining new sources of noninterest income.

CUNA also submitted a joint letter to the subcommittee with the National Association of Federally-Insured Credit Unions raising similar concerns.

“Our associations strongly object to legislation intended to restrict the ability of credit unions to offer overdraft protection options that help members resolve short-term financial difficulties. Credit unions are committed to keeping their members from turning to the underregulated financial services market to meet their liquidity needs.”

Paul Kundert, president/CEO of UW Credit Union, testified before a House Financial Services subcommittee in March about credit union overdraft programs.