By Marcia Hune
MCUL Vice President of
Government and Public Affairs
Some of the big questions for credit unions this year have revolved around sweeping new federal legislation designed to protect consumers from predatory and unfair financial practices. Will credit unions be able to effectively exempt themselves from bills targeting practices in which they haven’t engaged? Credit unions have lent responsibly, worked closely with their communities and never gouged members with unnecessary fees; will this message be received by lawmakers and reflected in who is impacted by potential dramatic regulatory changes?
So far, it seems federal lawmakers have an understanding that credit unions and community banks are a different animal from the major players responsible for bringing the economy to the brink. This is a result of effective grassroots lobbying and the clean credit union track record, but we have work to do as we enter 2010 looking at potential alterations to the Community Reinvestment Act and other regulatory changes.
A major topic that has brought about federal legislation – and more recently a final rule from the Federal Reserve – is that of overdraft protection. With credit tight, more attention has been drawn to the use of debit cards, and consequently the issue of overdraft fees. Banks reeled in overdraft fees to the tune of $38.5 billion this year and at a time when pro-consumer sentiment is high, this sort of number is easily noticed. The result was legislation introduced in the House by U.S. Rep. Carolyn Maloney, D-N.Y., and the Senate by U.S. Sen. Christopher Dodd, D-Conn., that limits what financial service providers can take in overdraft fees and includes other measures to keep consumers informed of overdraft policies.
The extreme nature of the Dodd and Maloney bills caused credit unions and their associations to quickly lay out the reasons why the measures are unnecessary and potentially harmful to credit unions. But when it seemed other issues would be on the front burner for Congress until overdraft was addressed in the New Year, the Federal Reserve announced Nov. 12 that all financial institutions would need consumers’ consent before taking fees for some overdraft protection services and give additional communication about the nature of their policies, among other items.
The Fed's action presents an interesting example of a regulatory solution to a financial issue already being addressed by Congress. The Federal Reserve’s rule is less severe than the bills in Congress; it doesn’t place restrictions on the frequency or size of overdraft fees and doesn’t mandate as many notifications to members and customers. From the beginning, CUNA President/CEO Dan Mica and other credit union advocates had expressed to lawmakers that while there was no need to address credit union overdraft fees to begin with, a regulatory action was preferable over legislation if something were to be done. The question is whether Dodd and other members of Congress will continue to pursue the stricter measures through their legislation.
Whatever becomes of these bills, the overdraft issue is an example of the sharp contrasts between credit unions and other financial service providers that must be taken into consideration by lawmakers as they work to protect the U.S. economy from a repeat of the last two years. As non-profit cooperatives, credit unions have no incentive to charge unreasonable fees for a service like overdraft protection. Credit unions that charge overdraft fees have a $25 average compared to the $35 average at banks, and at credit unions this money goes toward building capital levels and reducing or eliminating fees elsewhere. Most importantly, overdraft protection helps credit unions resolve short-term financial problems with members and keep them from turning to payday lenders. Overdraft protection at credit unions is designed specifically with members’ financial well being in mind.
As the overdraft issue develops, the MCUL will communicate with credit unions on what needs to be done to prepare for the July 10, 2010 implementation date of the Fed’s final rule. In the meantime, we will also work to provide updates on what Congress decides with regard to their stricter legislative proposals, and what credit unions can do to communicate our argument to lawmakers. You can find a brief on this and other issues on the Legislative Affairs page at www.mcul.org.