By Carrie Hunt
Once again, the topic of overdraft protection and its perceived flaws are back in the spotlight. Lawmakers, regulators and industry leaders are looking for a solution that puts consumers first. So how should they go about solving the "flaws" of this resource that – for many – can be vital?
The answer, simply put: Look to the credit union industry.
Unlike other financial institutions, credit unions bring a holistic approach to financial services and have been putting the consumer first since inception. Time and time again, we prove that we are the good actors in the financial services space. Some call it the credit union difference.
Overdraft protection is a longstanding useful service for some consumers, and many who take advantage of this do so fully aware of the costs associated and opportunity to "opt- in or out." The mindset that consumers need to be protected from themselves does not apply here, because what negatively impacts a member negatively impacts the credit union.
What the Data Show
Data show consumers want access to overdraft services. Credit unions, as member-owned, not-for-profit cooperatives, are uniquely situated to offer these products in a responsible and conscientious manner. Banks, on the other hand, have a track record of abusing consumers with high fees in this area.
Credit unions also offer consumer-friendly alternatives to overdraft – such as overdraft lines of credit and account linking – in order to help members meet their financial needs and day-to-day expenses. Even during hard economic times, consumers deserve peace of mind that they can pay their bills or buy groceries without fear of a returned check or declined transaction.
Another example, payday alternative loans are small-dollar, short-term loans designed to aid members in the case of an unforeseen circumstance. Think illness, natural disaster or a missed paycheck. When the government shut down and left federal employees and personnel without pay for more than a month, credit unions kicked into overdrive to provide relief and assistance with services such as overdraft protection and short-term loans.
Opening the Door…
The Consumer Financial Protection Bureau's announcement that it plans to review its 2009 overdraft rule could be a positive, as regulatory clarity helps avoid frivolous litigation. But, opening this rule also opens the door to overregulation.
Credit unions are not in the business of making money off members' backs – they never have been and never will be. We will leave that up to others in the financial services industry who already do this so well.
The solution is not increased regulation but increased awareness. When a credit union offers any type of financial offering, including overdraft, they take great care to ensure members are receiving a solution to their financial needs, not a just product.
It is time to review the facts. Credit unions consistently provide the very safe and affordable solutions their members seek. There is no better time than now to change the dialogue. It is not about just one product or service, it is about the credit union difference.
Carrie Hunt is executive vice president of government affairs and general counsel for the National Association of Federally-Insured Credit Unions.