Industry Wary of Proposed House Bill HR 3904 (Overdraft Payments)




AN EMAIL NEWSLETTER PUBLISHED BY STRUNK & ASSOCIATES, L.P.

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Industry Wary of Proposed

House Bill HR 3904

Not Good Public Policy Says Former NCUA Chief



On October 30, 2009, the House Financial Services Committee listened to testimony from both industry as well as consumer advocacy groups on proposed bill HR3904 which would put severe regulatory restrictions on overdraft payment programs for financial institutions. Dennis Dollar, former Chairman of the NCUA and now Principal Partner of Dollar Associates, commented on a number of issues surrounding the new bill in his formal remarks to the committee (CLICK HERE FOR ARCHIVED TAPING).



He argued that overdraft payment services, when administered properly, are a valued service that credit union members and consumers appreciate over the traditional handling of NSF transactions. With overdraft protection, rather than being charged a NSF fee, the member is charged a comparable fee to honor the overdrawn item. "It is important to remember that an overdraft fee is not an additional fee above and beyond the NSF fee," according to Dollar.

"Credit union members see value in these programs because they are able to realize the additional cost savings associated with avoiding late fees, merchant charges, and cancellations of service. In addition, these programs prevent the embarrassment and potential legal liability of writing a check that is returned for insufficient funds," he explained.

Dollar also questioned the claim by critics that consumers see little to no advantage to these programs and feel ripped off by them. He contends that if consumers feel the services have no worth, why are they so popular and utilized by so many credit union members?

"And the fact that financial institutions have increased earnings from these programs should not automatically be viewed as suspect, but rather should be seen as evidence that the consumer appreciates overdraft services and is comfortable utilizing them when needed," he contends.

While the former regulator supports the financial institutions' right to offer overdraft services, he is quick to point out that he only supports programs that are fair and responsible.

"Program disclosures should be well defined and easy to understand. Consumers should always be afforded the right to opt out upon request. Ongoing cumulative totals of overdraft fees should be clearly disclosed. Check processing order should also be disclosed; perhaps even providing options for the processing order left to the discretion of the consumer. And when technology allows it, an 'opt out' at the point of sale would be a best practice worth implementing."

Most of these standards are the way responsible financial institutions handle their overdraft programs today. "Because some do not follow best practices does not, in my view, make a case to over-regulate those who do with punitive or burdensome legislation," he adds.

"My background as a federal regulator who sat on the Federal Financial Institutions Examination Council from 2001 to 2004 leads me to believe that the regulatory agencies are best positioned to police this arena and to eliminate substandard overdraft services. I strongly urge that any statutory or regulatory action be focused on program abuse. Legislation that would largely dismantle these services through untenable restrictions, I emphasize again, would not be good public policy," he concludes.

Strunk & Associates – Genuine Expertise

Early in the development of its Overdraft Privilege Service Program, Strunk & Associates recognized that there was only one way to deal with the projected continual issuance of regulatory actions dealing Safety and Soundness and Consumer Protection in the financial industry – significant and ongoing investments in compliance and legal expertise with nationally recognized law firms.

lawbooksStrunk clients are provided with the most comprehensive up-to-date and detailed set of best practices, policies and disclosures in the industry. Our guidance package is designed to assist our clients in their compliance efforts to ensure that their practices and processes with the Strunk discretionary overdraft payment service program is reliably compliant, prudent, safe and responsible.

Our ability to recognize and address the dynamics of regulatory forces and provide reliably compliant, prudent, safe, flexible and responsible solutions is an important Strunk core competency. More importantly, it provides a strategic set of assets for credit unions that differentiates Strunk & Associates from other overdraft payment service third party providers.

Our Track Record

For almost two decades, Strunk & Associates has provided nearly 2000 clients with the leading discretionary overdraft payment service. During this period, our clients’ practices and processes have remained compliant, prudent, safe and responsible.

Our clients have undergone thousands of federal and state examinations without a single reported issue. Furthermore, no Strunk client, who has followed our recommended program guidelines, has ever been subject to negative press during their implementation or continued management of Strunk’s Overdraft Privilege Service Program.

If you're looking to refresh, renew and improve underperforming areas of your existing overdraft payment program, call Strunk & Associates today at 800.728.3116.

For additional information on Overdraft Privilege from Strunk & Associates, CLICK HERE.

The Strunk Overdraft Privilege Service support and compliance programs go far beyond the "legal minimum." The Strunk program includes support for the broader issues of risk management, business continuity and the delivery of a sustained and a superior member service level.

Contact Strunk & Associates today at 800.728.3116

 

the Bottom Line

Marc PaineBy Marc Paine

Executive Vice President

Strunk & Associates, L.P.



Well, October has been a busy month for Congress. It seems our legislators have found enough time to rejoin their pursuit of bills that address discretionary overdraft payment service programs. Two significant pieces of legislation are currently being considered on Capitol Hill.

Legislation

On October 19, 2009, Senator Chris Dodd (D-CT) disclosed S. 1799 – The Fairness and Accountability in Receiving (FAIR) Overdraft Coverage Act. Among the provisions in Dodd's proposed legislation are requirements for member consent prior to enrolling them in overdraft protection programs ("opt-in"). It also stipulates that members must be warned if an ATM or teller transaction would overdraw their account.

Measures to stop financial institutions from manipulating the order in which they post transactions have been included in the bill as well as provisions that will limit the number of overdraft coverage fees credit unions can charge to one per month and six per year. The Dodd bill further requires that "fees be proportional to the cost of processing the overdraft."

Representative Carolyn Maloney (D-NY) is co-sponsoring a House Bill (HR 3904) with Rep. Barney Frank (D-MA) that represents the companion bill to Senator Dodd's S. 1799 (see comments by Dennis Dollar, former Chairman of the NCUA in the left column article).

Without a doubt, legislative concern with overdraft protection products has been driven by recent media coverage portraying all overdraft programs as predatory and exploitive. We know this grossly misrepresents overdraft payment service products as well as credit unions in general. But let's be realistic, it is more likely than ever that something will pass this Congress.

Moving Forward

I've attended a number of meetings and conventions during the last three months and got a chance to visit with friends and other participants who all seemed to want to know about the House Bill HR 3904, the Senate Bill S. 1799 and their impact on checks, debit cards and ATMs. Many financial institutions have asked us, "Shouldn't we wait until Congress acts?" Absolutly not! There is no reason to delay providing this service and allowing members to enjoy this valuable and well received program.

Keep in mind that the great majority of changes being proposed by these proposed bills are entirely consistent with Strunk's existing overdraft protection recommendations. Due to the strong focus and emphasis we place on compliance and full disclosure during and after roll out of our overdraft payment program, our clients and their accountholders are well educated on the details of our discretionary overdraft payment program. Nothing is hidden from account holders.

The entire Strunk regulatory staff and outside legal counsel are monitoring both bills very closely. It appears that workable compromises are being considered within both versions.

I want to emphasize that Strunk and Associates believes that there is nothing in either proposed legislation that will prevent the continuance of discretionary overdraft payment service programs by credit unions.

A Call To Action

However, getting legislators to consider concessions that frame these bills into something that credit unions can live with, will not happen without proactive advocacy efforts undertaken by credit unions through their Leagues, CUNA, NAFCU and other organizations. We strongly urge you to stay on top of the issues involved in the legislation.

Credit unions should challenge reporters in their local area to actually investigate and report on overdraft services by talking to actual members in their area and local credit union executives – rather than using "case histories" provided by consumer advocates.

Reporter2

And it should not stop there. If you have a successful overdraft payment program with satisfied members, share your story with government representatives at the local, state and federal level. Telling the "other side" of the story need not be apologetic or defensive.

With this in mind, we have prepared a one page information sheet that points out problematic issues associated with the HR 3904 and S. 1799 and provides information on the how to contact members of the House and Senate committees considering this legislation. CLICK HERE for your CALL TO ACTION INFORMATION SHEET.

Strunk & Associates is proud of its leadership role in compliance and the development of best practices that drive successful overdraft programs and satisfied accountholders. We look forward to working with the credit union community in the future. Strunk and Associates will continue to assist our clients with any new compliance requirements and will assist with the development of any new best practices that are required to remain in full compliance.

For our paper on The Correct Methods to Provide Overdraft Protection, CLICK HERE.



And that’s the bottom line!

MarcSig











 
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