Digital Article Repository: Overdraft Protection Programs (ODP)

Overdraft Fees, NCUA Oversight of Vendors Comes Up During Another Senate Hearing

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May 11, 2022 — The issue of overdraft fees raised its head in yet another Senate hearing, as did questions around cybersecurity risks to credit unions.


Both issues were raised during a Senate Banking, Housing, and Urban Affairs Committee hearing focused on the Financial Stability Oversight Council’s (FSOC) report to Congress at which Treasury Secretary Janet Yellen testified.

During the hearing, the Committee discussed stablecoin legislation, inflation, and Russian sanctions.

But committee Democrats also shared their displeasure with banks’ reliance on overdrafts fees as a source of revenue, as well as the risks posed to credit unions via cyberattacks – specifically calling for third party vendor oversight authority for NCUA, which has sought the additional powers.

Sen. Raphael Warnock (D-GA) asked Yellen if she thought that banks’ use overdraft fees as revenue was a sound practice, to which she responded that she found some of these fees “abusive.”

When asked how she would work with other regulators to hold banks accountable on this issue, Yellen responded by stating it was not the FSOC’s responsibility, but rather under the domain of the CFPB.

Risks to CUs

Separately, Sen. Jon Ossoff (D-GA) raised questions around risks posed to credit unions by cyberattacks, calling for third-party vendor authority at the NCUA. Ossoff said he is working on legislation to give the agency third-party vendor authority, with Yellen followed up by describing the lack of such authority as an “important gap” and further adding she would like to see the legislation.

May 6, 2022

Card Interchange, Overdraft Fees Get Scrutiny During Senate Hearings

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Card interchange and overdraft fees were the subject of two separate Senate hearings yesterday, and there were powerful interests on both sides of each issue, including credit unions.

durbin portrait web

Senator Dick Durbin

In his opening statement to the Senate Judiciary Committee hearing on interchange, titled “Excessive Swipe Fees and Barriers to Competition in the Credit and Debit Card Systems,” Sen. Dick Durbin (D-IL), chair of the committee and for whom the so-called Durbin Amendment is named, made clear his position hasn’t changed since that amendment became law a decade ago. Durbin referred to interchange fees as “anti-competitive,” and blamed rising interchange fees for higher consumer prices.

“Visa and Mastercard control around 80% of the credit and debit card market. And they have established a system of fees and rules that apply to every transaction involving cards issued by the thousands of banks in the Visa and Mastercard networks,” said Durbin. “Interchange fees are designed to avoid competitive market pressures. Banks get the fees, but the banks do not set the fees. Instead, the banks let Visa and Mastercard set the fees on their behalf, so the same schedule of fee rates applies for all banks in the network.

“Bottom line: when swipe fees go up, it costs more to use money.  And that cost gets built into the prices that consumers ultimately pay,” Durbin said.

Nearly $80 Billion in Fees Paid

According to Durbin, merchants paid out $77.48 billion in credit card fees and $28.06 billion in debit card fees imposed by Visa and Mastercard during 2021. As reported earlier, the hearing and the themes expressed by Durbin were welcomed by the nation’s retailers and merchants. Both CUNA and NAFCU sent letters to the committee ahead of the hearing warning of “concerns” around any changes (see separate reporting).

A merchants’ trade group had called for the hearing after Visa and Mastercard last month declined to stop a $1.2 billion increase in swipe fees even though Durban, Sen. Roger Marshall (R-KS), Rep. Peter Welch (D-VT) and Rep. Beth Van Duyne (R-TX) had requested that the hike be withdrawn.

Hearing on Overdrafts

Separately, a hearing before the Senate Committee on Banking featured new congressional pressure on financial institutions to eliminate overdraft fees, even as the financial services industry, including credit unions, have been pushing back.

Sen. Raphael Warnock (D-GA), who chaired the hearing, praised those banks and CUs that have reduced or eliminated fees, but indicated he believes more can be done. According to Warnock, banks made $33 million off of overdraft fees last year, and that eliminating the fees will help many in the working class, college students and people serving or who have served in the military.

“Working families are trying to figure how to pay for groceries, how to pay for prescription drugs in a world in which big pharma is exploiting the cost of drugs and on top of that you have these overdraft fees, which are totally unnecessary and this is a part of my effort to shine a light on this,” Warnock said during the hearing.

Read the entire article here.



Filene Outlines ODP Best Practices in an Ever-changing Environment

Overdraft protection programs (ODP) have been under increased scrutiny in the wake of the pandemic and grabbing headlines as large banks, such as Capital One, pledge an end to overdraft fees and publicize significant revenue losses to bring “humanity to banking.” (Forbes 2021)

Additionally, in December 2021, the CFPB explored ongoing concerns on the impacts of overdraft fees by publishing their research demonstrating the revenue three large banks (JPMorgan Chase, Wells Fargo, and Bank of America) brought in as a result of collecting on these fees.

Credit unions, who have a consistent history of helping those in the most need, particularly with lower incomes and weaker credit histories, will need to adjust to stay competitive in the marketplace.

How should credit unions and regulators approach this changing dynamic?

The Filene Research Institute took this challenge head-on and examines best practices for credit unions rethinking noninterest income sources as well as the consumer behaviors that contribute to competitive entities (fintechs) increasing market share. Their guidance features key findings and takeaways from 16 in-depth interviews with credit union leaders on the forefront of reimaging a solution that works for everyone.

This analysis outlines:

  • ODP user demographics and characteristics
  • Action steps for credit unions to protect their members and bottom line
  • Defines the goal: “understand the most vulnerable member and proactively diversify sources of noninterest income.”

 For more information, read Filene’s Study “Overdraft Protection Programs: Credit Union Best Practices.”

Related: NASCUS’s Summary on CFPB 2022-0003: Request for Information Regarding Fees Imposed by Providers of Consumer Financial Products/Services here.


March 11, 2022

What’s the Real Motivation Behind Sweeping Changes to Overdraft Services?

Courtesy of John Cohron, JMFA Chief Executive Officer

Changing market conditions and renewed interest by regulators to address products and procedures that are perceived as harmful to consumers have fueled sweeping changes in some overdraft strategies recently. For undisclosed programs and those with fees that have steadily escalated over the years, such changes may be necessary as regulators attempt to rein in overdraft practices that run counter to their calls for transparency.

The news from some of the nation’s largest banks making major modifications doesn’t mean that overdraft services aren’t beneficial to consumers. It just means that some program strategies are out of line with regulatory expectations and what consumers need. This fact was punctuated recently in comments by Acting Comptroller of the Currency, Michael J. Hsu, who said, “limiting overdrafts may limit the financial capacity for those who need it most.”

Sweeping changes can stir up unexpected consequences

Community credit unions should absolutely be re-evaluating their overdraft approach to ensure they are doing right by the members they serve. However, making changes without the right direction and resources can create difficulties for members who trust their financial institution to “have their back” when they have liquidity needs.

For instance, eliminating overdraft fees may sound appealing, but what happens when a transaction exceeds a members’ balance? Is it covered or returned? If it is returned—for a mortgage, rent or utility payment—will the result be a disruption of service or penalty fee that exceeds the original overdraft fee?

Read more from LSCU Insight here. 



PSECU Announces Removal of Non-Sufficient Funds Fees, Lowers Courtesy Pay Fee, and Continues No-Fee Overdraft Protection Transfer Service

February 15, 2022 – PSECU, Pennsylvania’s largest credit union, announced today that it is removing Non-Sufficient Funds (NSF) fees for all members, effective March 1, 2022. In addition, the fee for using the credit union’s Courtesy Pay service will see a 50% reduction, lowering from $30 to $15 per transaction. These changes complement the credit union’s existing commitment to no- or low-fee services, such as its no-fee Overdraft Protection Transfer Service.

“We’re constantly working to identify ways to reduce financial pain points and offer the best value possible for our members,” said George Rudolph, PSECU President & CEO. “Reworking our fee structure for Non-Sufficient Funds and Courtesy Pay is just one example of that. Continuing to offer our no-fee Overdraft Protection Transfer Service is another.”

“The first line of defense our members have to avoid overdraft-related fees is our no-fee Overdraft Protection Transfer Service,” said Barb Bowker, PSECU Chief Member Experience Officer. “This has been a no-fee service since its inception and provides all members the ability to link another share or Visa® credit card to their Checking share (excluding specialty account types.) If there are not sufficient available funds in their Checking share when a qualifying transaction is processed, funds are transferred from the linked account at no cost to the member.”

This no-fee Overdraft Protection Transfer Service from PSECU saves members money by providing them with the no-fee service from the credit union and by helping them avoid potential returned check or service fees charged by payees.

In instances where members have a Checking share without Overdraft Protection Transfer Service or a designated account does not have sufficient available funds, the credit union offers a discretionary service known as Courtesy Pay. Eligible members are automatically enrolled in this service, which provides a $500 Courtesy Pay limit on eligible transactions. Previously, the credit union charged a $30 fee for this service. Now, however, that fee is being reduced by 50% to $15 per transaction. As always, members will be permitted to opt-out of this service; however, remaining enrolled could protect them from potential returned check or service fees charged by payees.

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