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Senate Banking Subcommittee Weighs in on Overdraft Fees



Overcome program criticism by reviewing fees and procedures from a consumer point of view

By CHERYL LAWSON, JMFA EVP of Compliance Review

Following the House of Representatives Financial Services Subcommittee hearing in March, the Senate Banking Committee’s Subcommittee on Financial Institutions and Consumer Protection convened on May 4 to weigh in on potential legislation or intervention to address the impact overdraft fees have on working families. As in previous hearings, two distinct perspectives were presented in the Senate gathering through in-person statements and written testimony.

On the one hand, lawmakers critical of overdraft fees cited data collected by the Consumer Financial Protection Bureau (CFPB) that identified how big banks profited by soaring overdraft fees during the pandemic. “In the fourth quarter of 2020, banks collected $2.3 billion in overdraft fees—a 64% spike from the second quarter of that same year. JPMorgan Chase raked in more than seven times as much in overdraft fees per account than other competitors, charging a total of $1.5 billion in overdraft fees in 2020.”

In conjunction with the hearing, letters sent to JPMorgan Chase, Bank of America and Wells Fargo, co-signed by Senators Elizabeth Warren (MA), Cory Booker (NJ) and Caroline Maloney (NY), questioned the banks’ overdraft fee policies and lack of consumer protections. Ironically, these are three of the largest CFPB-supervised banks which have maintained non-disclosed overdraft procedures for years.

Proponents of safe, high-quality consumer products urge caution on additional restrictions
Counter testimony by program proponents, economic and technology experts, as well as industry representatives, presented research indicating more than 60% of all overdrafts result from consumers who intentionally use the service to cover an essential expense or emergency situations. David Pommerehn, Consumer Bankers Association general counsel, advised the committee that “outside of overdraft, few options remain for consumers to meet their cash-flow needs within the highly regulated banking industry.”

A statement presented from the American Bankers Association (ABA) stressed the importance of regulatory policies that help consumers address misalignments in deposits and payments with a variety of options, including overdraft protection services. The ABA cautioned policymakers in both the Senate and the House of Representatives against imposing additional restrictions on a product that consumers value—and urged them to take the following three steps as it examines overdraft services:

  • Respect and protect consumer choice.
  • Direct the CFPB to study why consumers use and value access to overdraft protection.
  • Encourage regulators to reduce barriers that discourage the offering of affordable, small-dollar credit.

Overcome criticism and uncertainty by matching program benefits with market needs
As lawmakers and regulators continue to look at overdraft programs and fees, their concerns once again center around issues that prior regulations and inter-agency guidance have already addressed. And while there continues to be criticism from some regulatory leaders and the media, an overdraft solution can be beneficial for both consumers and financial institutions if it is well maintained and fully disclosed.

Community banks and credit unions that see value in the service an overdraft solution provides for consumers can stay above the fray by reviewing their program. Now more than ever, it is critical to determine if changes need to be made to ensure it is a fit for today’s marketplace and offers value for consumers. Important questions to consider include:

  • Are the fees reasonable?
  • Is the program non-discriminatory?
  • How frequently are program details disclosed?
  • Are account holders provided alternative services that might better meet their needs?
  • Is a process in place for understanding account holder feedback to identify changes that would improve the program’s impact?
  • Are there ways to minimize the cost for account holders who are active users?

By taking the time to ask these questions and make the changes necessary to address the needs of your community, you will demonstrate your commitment to providing consumers with access to the programs and services they need to maintain control of their finances without spending quite so much in fees.

JMFA provides community banks and credit unions comprehensive overdraft consulting with consumer-focused recommendations, data-driven intelligence and a 100% compliance guarantee to address your evolving needs. To learn more, contact your local representative or call us at 800-809-2307.


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