Acting OCC Comptroller Identifies Overdraft Fee Programs for Consumer Benefit
On December 9, 2021, Acting OCC Comptroller Michael Hsu made remarks before the Consumer Federation of America's 34th Annual Financial Services Conference to address the use of bank overdraft fees.
In his remarks, Hsu stated he believes overdraft programs to be changing and that “outlook for meaningful reform is promising.” Hsu attributes this reform possibility to the following factors:
A desire to help and be part of the solution [that has] emerged across a wide swath of communities, businesses, and organizations in light of the awareness surrounding the “disproportionate impact on vulnerable communities” occurring throughout the pandemic and social protests highlighting “the unsustainability of gross and persistent inequality.”
Competition from fintechs which has increased the accelerated digitization of banking due to the pandemic and the ubiquity of smart phones and the increase in nonbanking options which have changed the supply and demand dynamics dynamic.
Renewed public attention on overdrafts which has lead bank CEOs to revisit and amend their policies¾leading to an overall decrease in their use and a more pro-consumer perspective implemented in those who remain.
The release of two research papers on overdraft reliance by banks, which led the CFPB to announce that it would be “taking action to restore meaningful competition to this market.”
The OCC staff review of overdrafts identified “several features of bank overdraft programs that could be modified or recalibrated to support financial health.” These include banks taking action toward:
Requiring consumer opt-in to the overdraft program.
Providing a grace period before charging an overdraft fee.
Allowing negative balances without triggering an overdraft fee.
Offering consumers balance-related alerts.
Providing consumers with access to real-time balance information.
Linking a consumer’s checking account to another account for overdraft protection.
Collecting overdraft or NSF fees from a consumer’s next deposit only after other items have been posted or cleared.
Not charging separate and multiple overdraft fees for multiple items in a single day and not charging additional fees when an item is re-presented.
Additionally, Hsu recommends that “policymakers, advocates, and banks should also consider using financial health as an additional yardstick by which to assess banking access, products, and services.” As such, Kennedy Sutherland recommends financial institutions review these recommended practices and compare them against their current policies and procedures to ensure that they reflect the quickly-evolving policy perspective on overdraft fees. .
For questions or concerns about how these remarks could impact your institution or for assistance in your review or amending process, please contact Kennedy Sutherland.