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ICBA Cautions Federal Reserve on Overdraft Restrictions

Unintended Consequences Could Be a Disservice to Consumers

Washington, D.C. (July 24, 2008)—The Independent Community Bankers of America (ICBA) urged the Federal Reserve to proceed carefully before imposing new restrictions on overdraft protection coverage under the Truth-In-Savings Act (Regulation DD). While applauding clear and simple disclosures that help consumers properly manage bank accounts, ICBA questioned whether the proposal would do a disservice to customers by discouraging community banks from continuing to offer a service most consumers welcome.

"ICBA agrees consumers should be informed and understand their accounts, but we question whether some requirements actually serve customers," said Karen Thomas, ICBA executive vice president and director of government relations. "Unnecessary barriers to financial products and services, especially in today's economic climate, can hurt consumers."

ICBA commended the Federal Reserve for limiting the proposal to automated systems that use pre-set criteria to cover a customer's overdraft, but strongly recommended explicitly excluding traditional ad hoc decisions by bank personnel on a case-by-case basis. ICBA agreed that customers should be informed about overdraft protection coverage and. allowed to opt-out electronically or by checking a box on a form to mail back to the bank. However, ICBA objected to requiring banks to send a complete opt-out notice every time an overdraft occurs as unnecessary and unduly burdensome. Instead, ICBA recommended a simple annual notice that could be combined with other disclosures.

In its comment letter, ICBA also stressed the importance of recognizing overdraft protection as an efficient and cost-effective customer service, pointing out that barriers to overdraft protection coverage could harm — not help — consumers.

Read the ICBA comment letter at www.icba.org.