NCUA Board Members Debate Overdraft Disclosures

Nine years ago the FDIC gave customers the right to see how much their banks were charging each quarter in overdraft and non-sufficient funds fees.

In January, the NCUA extended that transparency to credit union members.

NCUA Vice Chair Kyle Hauptman took time in Wednesday’s board meeting to note his disagreement with the policy that requires credit unions with $1 billion or more in assets to list their overdraft and NSF fees in Call Reports.

Board Member Tanya Otsuka disagreed, saying the information is important both for the agency and the public, who have a right to know it.

The rule applied to 442 credit unions starting in the first quarter. Their Call Reports showed they charged $594.6 million in overdraft fees and $316.5 million in non-sufficient funds fees in the three months ending March 31. They charged $758.9 million in other types of fees in the first quarter, according to NCUA data retrieved through the Callahan & Associates / Peer Suite.

Overdraft and NSF fees were 0.21% of average assets, compared with 0.17% for other types of fees.

Hauptman and Otsuka’s discussion took up 15 minutes of the 40-minute meeting. Hauptman, who was nominated to the board by former President Trump in 2020, said he brought up the issue because it had not yet been discussed in a board meeting.

“Yet I can’t go to any event without being asked the same questions: ‘Why are you doing this to us? Do you realize how harmful it is to members?’ My answers are, I wish the NCUA was not doing this – especially on such short notice – and finally yes, I do realize how harmful it is to consumers,” he said.

Hauptman said he learned of the policy change in January, and suggested alternatives, including shielding individual credit union data from the public, while publishing aggregate numbers. He said he also suggested postponing the rule for a year.

“All my ideas were rejected,” Hauptman said. “We are now yet another agency mathematically incentivizing institutions to avoid serving low-income people. This policy is very clear: Don’t serve the underserved.”

“Doesn’t it seem odd for someone to support the regulations that make it infeasible to serve low-income people, and then talk about ‘financial inclusion’ and lament the millions of Americans who are unbanked?” he asked. “It reminds me of the story about the guy who killed his own parents and then asked for leniency because he’s an orphan.”

Hauptman gave examples in which he said the consequences of a check being returned are far more costly than a $30 overdraft fee, such as a car being impounded because a parking ticket check bounced, or visitation being denied because a child support check bounced.

“Anyone at a banking institution will tell you the most distraught customers are not those whose bills were paid via overdraft, much as they may not like the $30 fee. Nope, the distraught customers are those customers upset that a bill wasn’t paid due to insufficient funds, forcing them to pay much higher costs,” he said.

Otsuka, who was nominated to the NCUA board by President Biden in September and sworn in January, said the NCUA needs to monitor credit union reliance on overdraft and NSF income.

“Institutions that rely more on a fee income can have a greater concentration risk. That is a significant concern,” Otsuka said.

She noted that the NCUA has been gathering information on overdraft practices since 2018. Among credit unions with at least $500 million in assets, the NCUA last year began conducting reviews of overdraft practices, including advertising, balance calculation methods and settlement processes.

She said she has heard concerns over the years from credit union members and other consumers about overdraft fees.

“Members have a right to know, the public has a right to know, what that fee income looks like,” she said. “This is important for member-owners.”

She said many financial institutions have already begun to get rid of overdraft fees.

There are also many credit unions which do not charge overdraft fees, and who are able to serve low-income people,” she said. “The market forces are already at play.”

Ten of the 442 reporting credit unions charged no overdraft or NSF fees in the first quarter, including Alliant Credit Union of Chicago ($20.1 billion in assets, 859,264 members as of March 31), Digital Federal Credit Union of Marlborough, Mass. ($12.3 billion, 1.1 million members) and Amplify Credit Union of Austin, Texas ($1.4 billion, 51,732 members).

Chief Experience Officer Stacy Armijo told CU Times that Amplify eliminated all banking fees, including overdraft and NSF fees, in February 2022 because they tended to fall heaviest on lower-income members, and because the credit union wanted to attract more members to open accounts.

“We felt like a complete absence of fees on our bank accounts could be a reason someone would choose us, and that’s turned out to be true,” Armijo said.

The credit union has watched carefully to see if the new policies have led people to abuse the system, and so far they haven’t.

“Not only did we not see people suddenly abusing it because we still have all the same limits, we didn’t suddenly change all of our limits and give ourselves more exposure, but we did see people recovering,” she said.

The CFPB proposed a rule in January that would set overdraft fees at a maximum of $14 for the largest credit unions and banks – those with $10 billion in assets or more. That threshold applied to 21 of the nation’s 4,702 credit unions as of Dec. 31.