Hsu Repeats Overdraft Warning in American Banker Op-Ed

Acting Comptroller of the Currency Michael Hsu today reiterated the controversial warning he first issued to banks earlier this month at ABA’s Washington Summit: “you don’t want to be the last bank with a traditional overdraft program.” In an American Banker op–ed, Hsu pointed to changes that several large and midsize banks have announced to their programs in recent days, noting that “banks that hesitate to adopt pro-consumer overdraft programs will soon be negative outliers.”

Specifically, Hsu called for banks to pursue what he called “pro-consumer” changes to their overdraft programs, noting that they should “resist limiting the extent of their reforms by taking a profit-oriented approach and reverse engineering costs to meet predetermined revenue targets.” Banks should “use data to identify the reforms that help customers the most,” Hsu said, including “grace periods that give customers time to cover overdrafts and avoid fees, grace amounts that allow customers to overdraft by certain amounts without a fee, and changes in posting order, i.e., the sequence in which payments are made, to limit repeat fees.” He added that banks should take a similar approach when developing small dollar lending capabilities and considering new products.

ABA earlier this month released new survey data highlighting that consumers want the option of overdraft protection, with 89% saying they find it valuable, and three in four saying that in cases when they had to overdraw an account, they were glad their bank covered the payment rather than returning or declining it. Consumers also agreed that it’s reasonable for banks to charge a fee for the service, and over half said they would oppose a government proposal to prevent banks from offering overdraft protection.