BSG Financial Group appreciates The Consumer Financial Protection Bureau (CFPB) Director Richard Cordray's February 3, 2016 letter to financial institutions regarding alternative products for their customers. We find the suggestions helpful and progressive for assisting customers of any institution who want a "non-traditional" way to manage their funds and avoid problems from fees, overdrafts and other challenges to their needed access to short-term liquidity. It truly is right on point with sound suggestions and something that every financial institution should work to achieve. It clearly states the letter is not in reference to any regulatory requirement, but "simply is a suggestion that I urge you to consider in serving your customers".
The letter explains that in October of 2014 the CFPB held a public forum to discuss among other things, recommendations for improving consumer access to lower-risk accounts, fully acknowledging that a different, or lower-risk account is appropriate to mitigate institutional risk. We support Director Cordray in urging financial institutions to make these accounts both available and visible to enable everyone, including the unbanked, to manage their spending and avoid unnecessary fees. In other words, give your accountholders and prospects choices!
However, I continue to believe the CFPB has a blind spot when it comes to overdrafts, as I disagree with the letter's suggestion that by providing accounts that prevent overdrafts, it will prevent overdraft fees. I disagree, since most financial institutions charge the same fee to pay or return items, checks or ACH items. Additionally, by returning items, customers generally are faced with another fee levied by commercial payees.
I also believe that the CFPB truly doesn't understand that most overdrafts are created by a small percentage of accountholders who choose to live a convenience lifestyle and are basically accessing a source of short-term liquidity
BSG Financial believes that the thousands of financial institutions in the United States offer hundreds of choices for consumers and if allowed to operate freely they can meet the banking needs of Americans.
In that vein, BSG Financial believes it is smart business for financial institutions to (profitably!) offer the following:
1) An account for those that are unbanked, and market it;
2) Other forms of short-term liquidity products – for example, micro-loans
3) The best overdraft solution for those accountholders who value the service
In summary, Cordray says, "Without access to such products, the financially vulnerable can be subject to inferior and more costly financial services that make it even more difficult for them to succeed in managing the ways and means of their lives. But we have come to think that banks and credit unions can do more to provide consumers with opportunities to access appropriate products that will give them a better chance to handle their inflows and outflows more effectively".
Let's quit sending our legitimate customers to non-bank banks. Let's serve all people by providing the accounts they need.