ICBA opposes any new overdraft rule, guidance, or legislation that would:
- Fail to recognize that using a bank’s overdraft program is often the least-expensive and most-convenient alternative available to a consumer who is short of funds;
- Fail to distinguish between discretionary or ad hoc overdraft payment and automated overdraft payment programs;
- Fail to recognize community banks’ customer-focused relationship model;
- Impose fee restrictions, caps or price controls;
- Impede on community banks’ ability to offer overdraft services to meet their customers’ needs;
- Dictate unreasonable and burdensome customer contact requirements beyond initial, annual, or change-in-terms disclosures/notices;
- Impose underwriting requirements and regulate the service as a credit product; or
- Result in unintended consequences such as an increase in the number of returned check and/or ACH debit transactions for consumers.
ICBA adamantly opposes using Regulation Z protections for regulating overdraft services for prepaid accounts.
Community banks offer many deposit account services to best address consumer needs. These include a variety of overdraft payment programs, in which the bank analyzes an overdrawn account for payment, and alternative services, in which customers can choose to transfer funds from a designated account or line of credit or to advance funds from a short-term, small-dollar loan to avoid an overdraft. Most community banks leverage their knowledge and relationship with the customer in making overdraft payment decisions and operating their overdraft programs.
Increased regulatory scrutiny of consumer overdraft payment programs has affected many aspects of how community banks offer these services to consumers, as well as how they monitor and manage these services. Discretionary or ad hoc overdraft programs – in which bank staff evaluates overdrafts on a case-by-case basis – are services that customers expect from their local bank and should not be subject to the same rules and limitations as automated programs, which are often developed and operated by third-parties. Even automated programs are appreciated by customers. In addition, attempts to impose price controls or caps on the number of overdraft fees a bank may assess on an account would cause banks to reject more transactions that would create a negative balance in an account – doing a disservice to the customer and placing new burdens on check processors and payment systems that would have to handle returned checks. For a consumer, this alternative – merchant returned check fees, possible credit report and check verification system blemishes, collections hassle, embarrassment, and the potential reliance on payday lenders – is far worse than incurring an overdraft fee.
Regulation Z requirements should not apply to checking or prepaid account overdraft services. Regulation Z is highly complex and is not the appropriate regulatory scheme with which to address these services as overdraft services are not a normal extension of credit, and Regulation Z disclosures would not be meaningful to the consumer.