WASHINGTON – As the CFPB contemplates how to encourage financial institutions to stop offering overdraft accounts, the agency must carefully avoid unintended consequences that would result in fewer choices for consumers, panelists at CUNA's Governmental Affairs Conference warned Tuesday.
For instance, burdensome regulations could force credit unions to eliminate certain services and drive customers to payday lenders, Gigi Hyland, executive director of the National Credit Union Foundation, said. She added that if a credit union decides to offer no overdraft accounts, it must be as automated as possible to lower credit union costs.
In addition, she said, credit unions should attempt to determine why particular members are overdrafting their accounts. But such work can be costly because it requires employees to build a trusting one-on-one relationship with members.
The bureau sent a letter to the 25 largest retail banks, calling on them to offer lower-risk accounts to more consumers in an effort to help prevent overdrafts.
Research has shown that there is a small percentage of consumers who are heavy overdrafters, CFPB Assistant Director Corey Stone said. Those consumers are "paying for the most expensive credit there is."
Hyland agreed, saying, "A lot of you rely on overdraft fees and that is not appropriate."
But restrictions on overdraft protection could pose a hardship to consumers, Todd Zywicki, executive director of the Law and Economics Center at the George Mason University Law School, said.
He said that research shows consumers who take advantage of overdraft protection often have limited access to other types of credit.
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