OCC’s Hsu Pushes Envelope with Call for ‘No-Cost Overdrafts’

The OCC identified principles for banks to implement what it calls “responsible overdraft programs that benefit financially vulnerable consumers,” while continuing to encourage banks to offer other options for short-term, small-dollar credit, Acting Comptroller of the Currency Michael Hsu said in a speech today. With policymakers increasingly scrutinizing bank overdraft programs—and with several banks recently announcing changes to their overdraft offerings—Hsu noted that his agency has conducted its own review of bank overdraft programs and identified “several features . . . that could be modified or recalibrated to support financial health.”

Among these features are: requiring consumers to opt in to overdraft programs; providing a grace period before charging an overdraft fee; allowing negative balances without triggering an overdraft fee; offering consumers balance-related alerts; providing consumers with access to real-time balance information; linking a consumer’s checking account to another account for overdraft protection; collecting overdraft or non-sufficient funds fees from a consumer’s next deposit only after other items have been posted or cleared; not charging separate and multiple overdraft fees for multiple items in a single day; and not charging additional fees when an item is re-presented.

Although Hsu stated that a “race to the top for the most pro-consumer overdraft program” could effectively reform banks’ practices, he also said that “[n]ew rules and the credible threat of enforcement actions” is needed to bring about the reform the OCC is seeking. In his remarks, Hsu appeared to express a preference for offering free overdrafts, rather than overdraft-free account options, such as Bank On-certified accounts, which can “limit financial capacity,” he claimed. “For those living paycheck to paycheck, the flexibility offered by low- to no-cost overdrafts can empower them to pay their bills on time, avoid high-cost alternatives, and improve their credit profile,” Hsu added.

“Banks across the country provide overdraft-free account options, including Bank On-certified accounts available at institutions making up more than 50% of the U.S. deposit market share,” said ABA President and CEO Rob Nichols. “We agree with Acting Comptroller Hsu that banks should consider offering Bank On-certified accounts. At the same time, surveys show a strong majority of consumers appreciate and value overdraft protection, and many are choosing banking products that provide overdraft coverage. Further, competition in the marketplace is leading banks’ overdraft programs to evolve, as the acting comptroller noted. We believe banks should have the flexibility to charge an appropriate fee for valuable services that otherwise leave banks on the hook to pay funds a customer may not have.”

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