OCC’s Hsu warns banks not to be the last to update overdraft programs

Bank Regulatory Federal Issues OCC Overdraft Consumer Finance

On March 28, acting Comptroller of the Currency Michael J. Hsu warned banks that they “don’t want to be the last bank with a traditional overdraft program.” Hsu’s op-ed pointed to recent overdraft reforms taken by several OCC-regulated banks that may end up saving consumers more than $2 billion annually. Recognizing that these reforms are “just the start,” Hsu stressed that “[b]anks that hesitate to adopt pro-consumer overdraft programs will soon be negative outliers.” Hsu outlined several points banks should consider when implementing overdraft changes, including taking a “customer-oriented approach” and implementing meaningful changes with lasting benefits to both customers and the bank, rather than “taking a profit-oriented approach and reverse engineering costs to meet predetermined revenue targets.” Banks should also “use data to identify the reforms that help customers the most,” Hsu stated, 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.” Additionally, banks should build on the “pro-customer” overdraft reform momentum when developing small dollar lending capabilities and considering other products, such as buy now/pay later and earned-wage access products. “The cumulative effect of these pro-consumer initiatives holds the promise of materially and sustainably improving the financial health of underserved populations and, by doing so, fortifying banks’ reputation for treating all customers, including the most financially vulnerable, fairly and thus earning their long-term trust,” Hsu said.