Credit unions can expect a review of their overdraft fee programs during examinations this year, their federal regulator’s ultimate intent being to use what’s learned in the reviews for “a more thorough review” next year, the chairman of the agency’s board said in a speech Monday.
Todd Harper, chairman of the National Credit Union Administration (NCUA) Board, also told a Washington audience that consumer compliance remains a supervisory priority for the agency, and that a recent proposal on succession planning at federal credit unions “would help ensure that credit unions of all sizes have strategies in place to fill crucial positions and remain viable for generations to come.”
On overdraft fees, Harper told the conference hosted by the Credit Union National Association (CUNA, a trade group) that debate about credit unions and banks charging abusive overdraft and related fees is “at a tipping point.” He said that, in his view, overdraft fees charged by some federal credit unions are fundamentally detrimental to members and inconsistent with the system’s mission. He observed that the Consumer Financial Protection Bureau (CFPB) has estimated that overdrafts and related fees cost credit union members $2.4 billion in 2019.
“Punitive overdraft fees can harm consumers, and households hit by frequent charges often have their checking accounts closed,” he said. “So, such fees can actually lead to financial exclusion, instead of financial inclusion. That runs counter to the system’s purpose.”
Harper said the overdraft programs are now a supervisory priority for the agency. He said examiners will request information about overdraft policies and procedures in 2022, as well as audits of credit union overdraft programs. “We will also review credit union communications with members about such programs,” adding that the agency would use the information gathered this year for “a more thorough review of credit unions’ overdraft programs in 2023.”
“During the last year, a growing number of credit unions and banks have eliminated or greatly decreased their overdraft fees,” he said, adding that as more and more institutions dramatically decrease or fully drop overdraft fees, “consumers will begin to expect your credit union to do the same.”
In other comments, Harper:
- Reiterated his call for greater consumer compliance protection by credit unions. “I understand this is not a popular opinion in this room. Many within the industry maintain that the NCUA should primarily focus on its safety-and-soundness mission or that the agency has not demonstrated a significant rationale for a stronger consumer compliance program.” He termed it a “dangerous myth” that credit unions do not discriminate because they are owned by their members – and said that myth should end. He said in the agency’s 2021 examinations, NCUA found violations of consumer compliance rules in nearly 15% of federal credit unions, with the most common related to credit reporting, truth in lending, electronic fund transfers, and equal credit opportunity rules. “What is more, in completed fair lending exams and reviews, we noted compliance management system weaknesses in the majority of cases,” he said. “Credit unions can — and should — do better.”
- Said that the incidence of mergers of credit unions following the coronavirus crisis is increasing, fueled in part by an absence of succession planning, especially in smaller credit unions. He said the proposal issued by agency in January is a flexible rule requiring succession planning at federal credit unions – but he indicated his hope that it would ensure credit unions of all charters and sizes would have strategies to fill key positions for years to come.