CUs May Be Headed for Showdown With Harper on Overdraft Rule
Credit unions and trade organizations openly support the NCUA's proposal. Harper has openly voiced his opposition.
The credit union community and new NCUA Chairman Todd Harper may be heading for a showdown over a proposed rule that changes the agency’s policies on overdrafts. Credit unions and their trade groups support the plan, while Harper and several consumer groups said it would not benefit consumers as they weather the economic impact of the pandemic.
“The proposed change to remove the 45-day limit will be beneficial to credit unions,” Mary Mullens, enterprise risk manager at the Michigan Schools and Government Credit Union, told the agency, in commenting on the proposed rule.
In December, the board approved a proposed rule that would require credit unions to establish specific time limits for members to either deposit funds or obtain a loan to cover each overdraft. Currently, the NCUA rules prescribe a 45-day time limit for members to solve overdraft problems.
When he was chairman, Republican board member Rodney Hood had tried to bring the overdraft rule to the board but was blocked by Harper and then-board member Republican J. Mark McWatters. When Republican Kyle Hauptman replaced McWatters, Hood brought the policy back to the board. Hood and Hauptman voted to approve it, while Harper continued to oppose it.
Since then, Harper, a Democrat has taken over as chairman. And while the chairman generally controls the board’s agenda, Hood and Hauptman could force the issue before the board if they give proper notice in advance of a board meeting.
Harper voiced his opposition at the December meeting. He said, “The reality is that overdraft programs are products of financial exclusion, not financial inclusion.” He said that the board could have taken a bold step toward helping credit union members deal with overdraft but chose not to.
Consumer groups, as well as officials from the Self-Help Credit Union and the Self- Help Federal Credit Union agreed. “By extending the time period for negative balance resolution beyond 45 days, the proposal would expose members to additional overdrafts, overdraft fees, and non-sufficient funds fees during the extended period,” they said.
But Kendra C.J. Rubin, chief legal officer at SEFCU, headquartered in Albany, N.Y, said that the “one-size-fits-all regulatory requirement makes it difficult for individual credit unions to align their overdraft charge-off policies with other charge-off policies.”
Mullins said that the rule will give credit unions the ability to determine an appropriate time frame that meets their “unique situation.”
Christopher McKenna, president/CEO at Cap Com Federal Credit Union, also in Albany said that it is in the best interest of a credit union to be able to determine the length of time to cure an overdraft.
CUNA officials voiced their support for the proposal.
“We believe arbitrarily limiting the ability of credit unions to work with members at this time – especially because of rigid regulatory language – is the wrong course of action and should be corrected,” said Alexander Monterrubio, CUNA’s senior director of advocacy and counsel.
NAFCU also endorsed the proposed rule, with Elizabeth Young LaBerge, the group’s senior regulatory counsel saying, “No consumer protection argument in support of a 45-day time frame, as opposed to a 60- day or 90-day time frame, has been raised and indeed there are no policy reasons for doing so.”
But the consumer groups, including the Center for Responsible Lending, as well as the Self-Help credit unions said that the majority of overdraft fees are paid by a small number of members who can least afford the fees. They said that the groups presented the NCUA board with the risks posed by the proposal when it originally was discussed in May.
They added that President Biden ordered agencies to review any questions of fact, law, and policy in rules, including proposed rules that have not yet taken effect.
As an independent agency, NCUA is not subject to that order, but agency officials have said in the past that they attempt to follow the spirit of such orders.
The consumer groups told the board that the overdraft rule falls under the categories of rules that Biden said should be reviewed.
“NCUA’s proposal clearly raises significant questions of fact and policy given it provides no evidence of its purported benefit and fails to consider the harms it could inflict,” they said.