OCC’s Hsu says regulators seek fairness in overdraft protection

Fees for overdraft services present a variety of risks for banks, but the goal of regulators is to make the fees more friendly to consumers, not to eliminate them, Acting Comptroller of the Currency Michael Hsu said today. Speaking at an economic conference in Washington, D.C., Hsu didn’t label overdraft fees “junk fees,” unlike President Joe Biden and Consumer Financial Protection Bureau Director Rohit Chopra in recent remarks. But he reiterated his belief that many banks should “update” their overdraft protection programs.

Overdraft fees can present regulatory risks, but “not all overdraft practices are equally risky, so some precision here is warranted,” Hsu said. One risky practice identified by Hsu was assessing overdraft fees on debit card transactions authorized when a consumer’s available balance is positive but later posts to the account when the available balance is negative, commonly known as “authorize positive, settle negative.” Another is the practice of charging multiple non-sufficient funds fees when a transaction is presented multiple times against insufficient funds in the customer’s account.

Hsu also cited a third potential risk: overdraft programs with no limits on the cumulative fees that may be assessed. “A high limit, or a lack of a limit, on the number of overdraft and NSF fees that can be charged in a single day has contributed to determinations that banks’ overdraft protection programs as a whole were unfair,” he said.

Still, Hsu said the goal of regulators isn’t to force banks to stop offering overdraft protection. “Many customers tell their banks, as well as groups that have studied overdraft practices, that this banking service helps them meet payments when they come due,” he said. “What we are all trying to do is improve the fairness of these programs by making them more pro-consumer, not to eliminate them. More fairness means more financially healthy communities, which means more trust in banking.”