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ICBA: Senate’s Overdraft Legislation Will Hinder Community Banks’ Ability To Offer Valuable Services; Mandatory Opt-In Has Adverse Effects

Washington, D.C. (November 17, 2009)—The Independent Community Bankers of America (ICBA) today told Congress in a written statement that the Fairness in Accountability in Receiving Overdraft Coverage Act (S. 1799) will have unintended consequences and drastically limit the ability of common-sense community banks to run fair overdraft programs that meet the needs of their customers, including offering traditional discretionary/case-by-case overdraft services.

“If this legislation is enacted, many community banks will be forced to abandon discretionary and automated overdraft programs, which most community bank customers view as a valuable service,” said R. Michael Menzies, ICBA chairman and president and CEO of Easton Bank and Trust Co., Easton, Md. “America’s 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.”

In the statement, ICBA calls on lawmakers to exempt discretionary overdraft services from the legislation. Discretionary services differ from other overdraft programs because they involve a community 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,” according to the statement.

ICBA also highlights other problems with the legislation, including the mandatory opt-in for all consumers on certain types of transactions. While S. 1799 is consistent with the Federal Reserve’s new Regulation E rules, it will be operationally challenging and expensive for community banks to implement overdraft policies to cover some but not all electronic transactions. It also will be confusing and inconvenient for consumers.

Additionally, ICBA expressed the following concerns about the legislation in the statement:

  • 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;
  • Real-time account balance information at an ATM or though a branch teller is not operationally feasible for most community banks.

ICBA looks forward to working with Congress to ensure that our nation’s more than 8,000 community banks can continue to provide valuable overdraft programs of all types to their customers across the country.