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ICBA: Overdraft Protection Act Will Harm Consumers and Hinder Community Banks’ Ability to Offer Valuable Services

Washington, D.C. (October 30, 2009)—The Independent Community Bankers of America (ICBA) today told Congress that while the Overdraft Protection Act, H.R. 3904, will curb abusive overdraft practices, it will also drastically limit the ability of common-sense community banks to run fair overdraft programs that meet the needs of their customers, including offering discretionary overdraft services.

“If this bill is enacted, a significant portion of community banks will stop offering discretionary and automated overdraft programs, and consumers will face a significant increase in the amount of returned checks and debit card transactions, which is not only an embarrassment to them, but could affect their credit rating and cost them more money than an overdraft charge,” said R. Michael Menzies, ICBA chairman and president and CEO of Easton Bank and Trust Co., Easton, Md., in testimony before the House Financial Services Committee.

Menzies said that the legislation must exempt discretionary overdraft services, which involve a banker actively evaluating, on a case-by-case basis, a customer’s overdraft and financial circumstances. “It is these situations that demonstrate the strength of the relationship-driven model of community banking and how overdraft coverage can be the most personal service a banker can provide,” Menzies said. “Unfortunately, H.R. 3904 would jeopardize a community banker’s ability to fulfill this role, leaving customers in the lurch.”

More than 75 percent of community banks offer overdraft services. Menzies said that ICBA strongly supports ensuring that consumers are fully aware of the terms and conditions associated with overdraft protection programs. For that reason, ICBA is pleased that H.R. 3904 restricts deceptive advertising and marketing of overdraft products. “Overdraft protection programs are a last resort and should not be portrayed as an extra line of credit or in any way that encourages consumers to overdraw their accounts,” Menzies said.

Menzies expressed further ICBA concerns about the bill by saying that:

  • Mandatory opt-in for all consumers is anti-consumer;
  • Price controls and quantity limits on overdrafts will reduce the availability of overdraft coverage and, potentially, other deposit services;
  • Prohibiting banks from issuing non-sufficient-fund fees will not eliminate debit card overdrafts and will result in losses for community banks.

ICBA looks forward to working with Congress to ensure that community banks can continue to provide valuable overdraft programs to their customers in cities and towns across the nation.