A proposed interim final rule to let federal credit unions (FCUs) decide how long members have to resolve account overdrafts went nowhere during Thursday’s open meeting of the National Credit Union Administration (NCUA) Board.
The board action memorandum suggested the rulemaking would, among other things, give FCUs and their members flexibility needed to cope with the impacts of COVID-19 (the novel coronavirus) and resolve a discrepancy between the current prescribed time frame and adopted interagency guidance addressing charge-offs, but it was tabled after neither of two other board members seconded Board Chairman Rodney Hood’s motion to approve it.
Todd Harper, the board’s lone Democrat, decried the rulemaking’s potential impact on members and cited a “sketchy” administrative process in bringing it forward. J. Mark McWatters, a Republican and formerly the board chairman, cited no compelling need to put the rule into effect immediately without first getting comments.
Under current rules, FCUs that allow overdrafts are required to have a board-approved written policy that sets a cap on the total dollar amount of all overdrafts the credit union will honor “consistent with the credit union’s ability to absorb losses”; establishes a time limit not to exceed 45 calendar days for a member either to deposit funds or obtain an approved loan from the credit union to cover each overdraft; limits the dollar amount of overdrafts the credit union will honor per member; and establishes the fee and interest rate, if any, the credit union will charge members for honoring overdrafts.
The proposed interim rule would have removed the 45-day time frame and replaced it with a requirement that the credit union establish a specific time limit “that is both reasonable and applicable to all members.” It also would insert language stating that consistent with U.S. generally accepted accounting principles (GAAP), overdraft balances “should generally be charged off when considered uncollectible.” Interagency guidance, the NCUA said, suggests a maximum of 60 days before an overdraft is charged-off.
Harper said the proposed interim final rule “does almost nothing” to help credit union members manage the impacts of COVID-19. Rather, he said, “credit unions will be allowed to charge the overdraft, will be able to charge off the overdraft after 60 days, and the credit union will still have the right of offset. That means a credit union can garnish its members’ income, including economic stimulus relief funds, to pay off the overdraft. It’s like having your cake and eating it too.”
Overdrafts “can be one of the most abusive” consumer products, Harper added. “Research has shown that consumers are charged billions upon billions of dollars in overdraft fees each year. Member-owned, not-for-profit credit unions are no exception to this practice.”
“I am disappointed that the overdraft rule is presented to NCUA today,” said McWatters. McWatters said he wasn’t aware of any issues that might arise from failure to immediately adopt the rule, and he was unaware that many credit union “constituents” or members had asked for this rulemaking. He added that receiving public comments after the rule is final would be of “limited” benefit. “There is a time and a place to use the interim final rule,” he said. “But this is not one of them.”
McWatters said it would be more productive to issue the interim final rule with a 30-day delay in its effective date, during which comments would be received. He also noted this rule, unlike other similar actions taken to address COVID-19, includes no end date and wondered whether, like some of those other actions, this one should be set to expire at year-end.
Hood moved to issue the interim final rule as presented.
“If you go through a full comment period, people who are unemployed will have to use overdraft,” he said. He added that 60 days – an apparent allusion to the guidance on charge-offs of overdrafts – “may not be enough, but it is a start.”
He said “we should not have to wait for a proposed rule or comments” before this rule can take effect. He said members opt in to the service, they understand it, and credit unions have been responsive to members seeking help with overdraft fees, in many cases waiving them. “The problem is now,” he said.