Overdraft Guidance No Holiday Treat, or The Death of Common Sense

Happy holidays, folks. In case you missed it, on the day before Thanksgiving, the FDIC released final guidance on overdraft-protection programs that institutes new regulatory burdens and doesn’t include a single recommendation from the community banking industry. Further, by threatening to shutter overdraft programs that were created at the urging of consumers in the first place, the agency’s guidelines are against the best interests of community bank customers. Talk about the nanny state gone wild. This is an Orwellian nightmare.

Following the Federal Reserve’s enactment this year of overdraft rules for debit-card and ATM transactions, the FDIC guidance requires banks to monitor programs for excessive customer use and to contact in person or by telephone customers who have incurred six overdrafts over a rolling 12-month period to discuss other alternatives. Additionally, the guidance encourages financial institutions to allow consumers to opt out of coverage for checks and ACH transactions and to impose daily fee limits. Much to my chagrin, the guidance does not explicitly exempt ad hoc overdraft payment programs, a service provided by community banks nationwide, as requested by ICBA.

Two days after the guidance was out—and as most Americans hit their local shopping malls or recovered from too much turkey and stuffing—The Wall Street Journal reported that three-quarters of bank customers are opting in to debit-card overdraft programs under the Federal Reserve guidelines. It is the latest study showing that consumers want overdraft protection. Requiring recurring customer contact will be regarded by most of these customers as harassment: the first call may be appreciated, but repeated calls will be poorly received and may force some of the neediest customers back into the shadow banking world. And then there are the state laws that must be reconciled with the FDIC rules—what a mess. As usual, well-meaning community bankers and their customers are caught in the crossfire.

The bottom line is this: Banks began offering overdraft protection to meet customer demand. And now the government is getting in between a product the customer wants (and in many cases needs) and the bank.

As ICBA continues meeting with the FDIC on this issue, we will work to ensure the new rules do not overburden community banks and threaten a product their customers want and need.

2 thoughts on “Overdraft Guidance No Holiday Treat, or The Death of Common Sense

  1. The new ruling for Overdraft protection is assuming that all consumers are incapable of making their own financial decisions about their needs or wants. The financial institutions were forced into implemeting the Opt In rules in July which should have been enough to satify the regulators for it proved that consumers wanted the service regardless of what expenses the banks had to endure to obtain their decisions. Adding even more rules for financial institution to enforce is causing an undue burden and an even greater expense to our the community bankers.It’s not going to change the facts that consumers have a need and /or want for the overdraft services.This new ruling will only cause more consumer fustrations.
    Imagine: Your given your options and you select the fit that you feel is right for your financial needs. Then everytime you use the product beyond what someone else thinks is right for you, you get a call or a knock on your door from your financial institution asking if you really know what your doing.

    Consider:
    Insurance companies offer a variety of insurance products. The products are chosen based on consumer needs. Terms are provided within the contract, signed by consumer then enforced for a fee. It’s the consumers piece of mind knowing that if something unforeseen should happen,they can file claim against the policy and be covered.
    I see Overdraft Services as an insurance product.It’s there for piece of mind. They know they are covered. The consumer consents to the terms and signs a contract. It’s used as credit protection if something unforeseen should happen.
    Please stop all the un-necessary oversight required by the financial Institutions and put the right of choice back into the minds and hands of the consumer.

    • Great posting Debbie – My question to the group is…how in the world will community banks manage such arduous follow up requirements? I can only image the tremendous amount of administrative work this is going to create to actually track the “excessive customer use” and to “contact in person or by telephone customers who have incurred six overdrafts over a rolling 12-month period to discuss other alternatives”.

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