Reform of bank overdraft programs holds the promise of achieving the goal of improving people’s financial health, the acting head of the national bank regulator said Wednesday, adding that his agency has identified attributes of existing programs that can help hit that target.
Among other things, Acting Comptroller of the Currency Michael Hsu (who heads the Office of the Comptroller of the Currency, or OCC) outlined several key features of bank overdraft programs that could be modified or recalibrated to support financial health. He said those included:
- 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.
“Promoting consumer financial health through responsible and fair products can be good business,” Hsu said in a speech to the Consumer Federation of America (CFA). “The practices associated with these products are often consistent with sound risk management, and designing and offering these products can help financial providers better serve their existing customers and acquire new ones.”
The acting comptroller said he “looked forward” to more OCC-supervised banks adopting overdraft programs that promote consumer financial health and greater income and wealth equality.
“To this end, the OCC will share the principles we believe will help banks implement responsible overdraft programs that benefit financially vulnerable consumers,” Hsu said. “We will also continue to encourage banks to offer other innovative products that address growing consumer demand for small-dollar, short-term credit in responsible, safe, sound, and financially healthy ways.”
Last week, the Consumer Financial Protection Bureau (CFPB) announced it intends to act on overdraft programs at banks – particularly fees charged – with the aim of restoring “meaningful competition” to the overdraft fee marketplace.
“The OCC has been working with the CFPB on this issue and we will strive to coordinate to ensure there are effective guardrails and backstops in case the momentum for overdraft reform stalls,” Hsu said. He added that while prior regulatory efforts may have prevented harmful overdraft practices from proliferating further, they did not result in material and sustained improvements. “New rules and the credible threat of enforcement actions for harmful practices should help ensure that at least some progress will be made in the future, bank reform efforts notwithstanding,” he said.