Todd Harper
The issue of overdraft and non-sufficient funds (NSF) fees has gone from a business practice that was seen as simply part of the credit union business plan, to a topic fraught with political and social ramifications.
Much of the fee debate began earlier this year when the CFPB issued a proposed rule to clamp down on banks and credit unions issuing what Director Rohit Chopra called “junk fees.” From there, the overdraft and NSF issue became worrisome for many credit union leaders who have or continue to have some kind of reliance on the fee income.
On Tuesday, NCUA Chairman Todd Harper posted the guidance letter on the agency’s website that gave credit unions a very clear picture of the NCUA’s stance on its approach to overdraft and NSF fees – these fees may be a significant legal, consumer compliance, third-party, and reputational risk to the credit union industry.
In the letter, Harper said overdraft and NSF programs can serve legitimate purposes as it relates to “sound account management and honoring transactions when members unintentionally overdraw their accounts.”
He added, “However, some credit unions operate these programs with certain practices or features that may result in consumer harm and heightened risk exposure for the credit union. In addition to potential heightened consumer financial protection risks, the NCUA is concerned that an overreliance on any one revenue stream — including overdraft and NSF fees — can result in concentration risk and impact the financial health of a credit union, its members, and the system as a whole.”
Credit union legal and compliance expert, Henry Meier, Esq., from the Law Office of Henry C. Meier, Esq., formerly with the New York Credit Union Association and occasional contributor to CU Times, said Harper’s guidance letter “is an unequivocal warning to all credit unions that have not already addressed their practices in this area. The time for complaining is over.”
He added, “While we can question whether this concern justifies an industry-wide approach to this area, the fact that NCUA highlighted this rationale indicates that it is sensitive to previous criticism that its monitoring of overdraft practices is not a legitimate regulatory concern.”
“There will be a new, presumably less aggressive, directive of the CFPB and this statement puts the industry on notice that the NCUA will be trying to fill any perceived gap in consumer protection,” said Meier. “At the same time, while a majority of the NCUA Board can clearly place proposed regulations on the agenda, the ability of board members to dictate supervisory priorities is not as clear cut. Chairman Harper will no longer be Chairman as this guidance is implemented.”
It is expected Vice-Chairman Kyle Hauptman will become the next NCUA Chair soon after the Trump Administration begins in January.
Harper’s guidance letter made a point to focus on the unexpected fees credit unions might charge members.
“Policies that assess overdraft fees on debit card transactions that authorize when a member’s account has a sufficient available balance to cover a debit card transaction but, due to one or more intervening transactions, has an insufficient balance to cover the transaction at the time it settles, are commonly referred to as authorize positive, settle negative (APSN) transactions. In addition to charging an overdraft fee on the APSN transaction, members may also be assessed an overdraft fee on intervening transactions that exceed the member’s available balance.
“Charging APSN overdraft fees when members would not reasonably anticipate them because they had a sufficient balance at the time the credit union authorized the payment is likely unfair under both the FTC Act and the CFPA,” wrote Harper.
Meier said, “This guidance does not do away with all overdraft practices, but eliminates practices such as Authorized Positive and Settle Negative. No disclosure, no matter how well crafted, will save you from regulatory scrutiny if you continue to utilize this and other practices noted in the guidance.”
He added, “You would be well-advised to scrutinize your account agreement and existing procedures.”
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Michael Ogden
Editor-in-Chief at CU Times. To connect, email at [email protected]. As Editor-in-Chief of CU Times since 2016, Michael Ogden has led the editorial team in all aspects of content strategy and execution, including the creation of the publication’s exclusive and proprietary research database of the credit union industry’s economic landscape. Under Michael’s leadership, CU Times has successfully shifted to an all-digital editorial product with new focuses on the payments, fraud, lending and regulatory beats. Most recently, he introduced a data-focused editorial product for subscribers that breaks down credit union issues into hard data, allowing for a deeper and more factual narrative for readers. In 2024, he launched the "Shared Accounts With CU Times" podcast, which offers a fresh, inside-the-newsroom perspective through interviews with leaders from the credit union industry and the regulatory world. He dives into pressing credit union issues, while revealing the personalities working behind-the-scenes to push the credit union world forward. His background includes years as a radio and TV anchor/reporter and a public relations and digital/social media manager, where he covered the food and music industries, as well as cooperatives and credit unions. Over the years, he has launched numerous exclusive video and podcast series, including a successful series of interactive backstage interviews with musicians at music festivals, showcasing his social media and live streaming production skills.
