Consumer Bankers Association Opposes Legislation Stifling Access to Safe, Secure Short-Term Liquidity

WASHINGTON – Consumer Bankers Association President and CEO Richard Hunt today released the following statement in opposition to the Overdraft Protection Act, legislation re-introduced by Rep. Carolyn Maloney (D-NY) that threatens consumers’ access to safe and secure short-term liquidity:

“Many customers who choose to participate in an overdraft program view it as a valuable service that enables them to make purchases for everyday necessities. Restricting access to overdraft, as this legislation calls for, would only drive consumers to predatory payday lenders or pawn shops – neither of which provide the same safety and soundness as well-regulated and well-supervised banks.

“Policymakers should be focused on encouraging innovation to meet the evolving needs of consumers, rather than stifling the very choice and flexibility overdraft services offer. That is exactly what America’s leading banks are working to do, introducing new products for customers who need short-term liquidity to pay their bills or cover unexpected expenses.”

As the only member-driven trade association focused exclusively on retail banking, CBA has long warned of the consequences of restricting this service among well-regulated financial institutions. As Hunt said in a recent interview to correct the record on overdraft, “If you start limiting access to credit, where are consumers going to go […]? They’re going to go to payday lenders and they’re going to go to online lenders.”

When the Overdraft Protection Act was re-introduced in 2019, Hunt said: “Consumers understand and rely on overdraft services to cover emergency expenses instead of turning to unregulated lending sources. Placing limits on consumers’ ability to access these services only hampers their ability to obtain short-term liquidity to buy gas to get to work, food to feed families or pay for emergency medical expenses.”

As lawmakers and regulators examine proposals to bolster consumer protections across the industry, here are several key points they must consider:

• Consumers value and choose to have overdraft services. Banks provide consumers with the option to sign up for a product that ensures their bills will be paid even in a paycheck or deposit is not immediately available. Many consumers appreciate knowing that the protection is in place if it is needed. Further, enrollment in overdraft services for debit card transactions is voluntary and is a customer choice – from the time they open an account to when they incur an overdraft. Customers must opt-in, they are NOT automatically enrolled.

• Eliminating overdraft services would harm consumers. For consumers, restrictions on overdraft services would reduce access to valuable liquidity – driving many of them to predatory payday lenders, which do not provide the same safety and soundness and well-regulated banks. Many short-term liquidity options are now off the table for depository institutions due to regulatory constraints.  Overdraft services are, for many, the only option to meet their needs.

• Eliminating overdraft services would not eliminate fees. Consumers would still incur fees, such as insufficient funds fees, which in most cases are equal to the fee charged for an overdraft. In addition, if the bank did not cover the transaction, the customer may incur a returned payment fee imposed by the payee or merchant, which in turn could result in additional fees in the form of late and/or interest related fees.

• America’s leading banks are taking the lead to provide their customers with more choices and greater access to short-term liquidity. Consumers now have more options within the well-regulated and well-supervised banking system than ever before to avoid overdrafts or have an overdraft product with features selected by the consumer. Some of these bank-driven efforts include:
  • Changes in practices such as redesigned overdraft programs, fee waiver for de minimis overdrafts, and daily fee caps.
  • Adoption of new policies to post transactions in low-to-high order or have otherwise changed their posting order.
  • Investment in digital enhancements, such as alerts, which enable consumers to manage their balance and correct pending overdraft before the fee is charged.

Click HERE to read more on why policymakers shouldn’t undermine existing overdraft regulations.

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About the Consumer Bankers Association:

The Consumer Bankers Association represents America’s leading retail banks. We promote policies to create a stronger industry and economy. Established in 1919, CBA’s corporate member institutions account for 1.7 million jobs in America, extend roughly $4 trillion in consumer loans and provide $275 billion in small business loans annually. Follow us on Twitter @consumerbankers.