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ICBA: Government “Protections” will Harm Consumers

Washington, D.C. (Aug. 5, 2008)—The Independent Community Bankers of American (ICBA) said proposed rules restricting how banks provide credit card and overdraft services will reduce customer options. In a letter to the Federal Reserve Board of Governors, Office of Thrift Supervision and National Credit Union Administration, ICBA stated these restrictions could drive consumers away from banks, thrifts and credit unions to less-reliable lenders. In today’s economy, restricting access to credit from depository institutions does not make sense.

"Community bankers support consumer protections, but these proposals will actually do more harm than good," said Robert Rowe, ICBA senior regulatory counsel. "When banks operate under tighter restrictions than non-depositories, consumers tend to go where terms look too good to be true—and banks find it hard to compete. That is one reason so many consumers turned to less regulated non-banks for mortgages. We don't want the same thing to happen with other financial products and services."

The agencies are preparing to adopt unfair or deceptive acts or practices (UDAP) rules restricting credit card and overdraft-protection services. The rules, which apply only to depository institutions, implement unnecessary overdraft notices, restrict interest rate increases for existing balances, and require costly hold processing. Many of the proposed changes would confront banks, especially community banks, with operational and technical hurdles that would be extremely difficult, if not impossible, to overcome. This would drive banks out of the market and increase costs for consumers. The proposed changes also would create an environment for expanded litigation. If adopted as proposed, these rules are likely to discourage community banks from continuing to offer services that most customers value, reducing overdraft protection and credit availability. Consumers would then be driven to non-depository institutions, such as payday lenders and check-cashers, causing further problems for already-strapped consumers.

Instead of developing a UDAP rule, ICBA said, consumers, bankers and the agencies would be better served by continuing to apply UDAP on a case-by-case basis, an approach that has worked effectively. Alternatively, the Federal Reserve could adopt rules using existing authority under the Truth-in-Lending Act and the Truth-in-Savings Act.

Read the letter at www.icba.org.