Hsu discusses bank overdraft reform

Federal Issues OCC Overdraft Bank Regulatory Consumer Finance

On December 8, acting Comptroller of the Currency Michael J. Hsu spoke before the Consumer Federation of America’s 34th Annual Financial Services Conference. His remarks centered on reforming bank overdraft programs to “empower and promote financial health” of consumers. Quoting a recent Brookings Institution publication, Hsu noted, “The existing system is regressive (reverse Robin Hood), creating structural barriers and elevating costs to those on the lower end of the income spectrum, while simultaneously showering benefits to those on the upper end.” To eliminate this “regressive system,” Hsu noted that banking deposit account services need to be structured “so that they improve customers’ financial capabilities and are priced to be low to no cost.” According to Hsu, Bank On’s approach, which sets a “baseline standard for safe, affordable, and appropriate accounts that meet the needs of low-income consumers, particularly those outside of the financial mainstream,” appears to be a natural solution for decreasing the population of unbanked individuals and eliminating overdraft fees. However, Hsu also acknowledged that “limiting overdrafts may limit the financial capacity for those who need it most.”

Hsu identified several product features “that could be modified or recalibrated to support financial health” and laid out specific recommendations on the heels of the OCC’s staff review of bank overdraft programs, which he noted already align with the overdraft efforts by many banks, including (i) requiring consumers to opt in to overdrafts; (ii) providing an overdraft “grace period” prior to assessing a fee; (iii) allowing negative balances without triggering an overdraft fee; (iv) offering access to real-time account balance information and alerts; and (v) linking checking accounts to another account for overdraft protection, among others.