There has been a plethora of news stories lately about the intentions of the Consumer Financial Protection Agency (CFPB) to roll back banking regulations, but this one from American Banker is a must-read: "From overdraft to HMDA, rulemaking has new look at Mulvaney’s CFPB. The article explains that acting CFPB director Mick Mulvaney has "overhauled the agency’s spring agenda, dropping several long-time goals of his predecessor, including a rule on overdraft programs."
A year ago, President Trump signed an executive order that directed agencies to identify two regulations to cut for every new one they intended to issue. We're 37 days into 2018 and it appears the president is keeping his word: “In our drive to make Washington accountable, we have eliminated more regulations in our first year than any administration in history of our country,” Trump said during his State of the Union speech last week.
Even the most cynical nay-sayer should feel positive about this changing regulatory climate.
We are especially encouraged with regard to the future of automated overdraft programs for several reasons:
- A diminishing role for the Consumer Financial Protection Bureau (CFPB) after Trump appointed new leadership to the agency and the Supreme Court upheld the decision
- A former banker, Joseph Otting, was sworn in as U.S. comptroller of the currency to serve as the leading regulator of national banks
- Approved changes to Dodd-Frank reforms
- Five federal financial regulatory agencies revealed likely changes to overdraft programs that seem rather minor, including revised disclosures, standard posting order and balance calculation methods
While reading the latest installment of the Temenos Group blog, the old advertising line, "When E.F. Hutton talks, people listen," came to mind. Temenos is one of the largest producers of software for banking and finance, with over 2,000 clients across the globe, including 41 of the top 50 banks. The company, which spends 20% of its sales annually on R&D, is well-respected for its deep industry knowledge that helps customers stay ahead of a changing marketplace. When Temenos comments on an industry trend, people tend to listen. Or they should.
What the company had to say about courtesy overdraft programs may cause your financial institution to re-evaluate the solution you currently offer... or make you scramble to get one in place.
In a nutshell, Temenos Chief Compliance Advisor, Blair Rugh, stated emphatically in the blog post:
"If you do not oﬀer a courtesy overdraft program, I suggest you reconsider your decision.
Maybe your initial decision was correct for your institution at the time it was made, but possibly now that the dust has settled and the issues are better deﬁned a diﬀerent decision would be more appropriate."
The conversation about overdrafts has been somewhat non-existent the past several months as community banks and credit unions patiently wait for impending compliance directives, changes within the CFPB and an uptick in the economy. It seems now–with positive movement regarding all these concerns–it’s time to start talking about the opportunities overdrafts represent and the best way to seize them.
CUES recently reported that “with The Financial Choice Act likely to pass Congress, compliance on overdrafts appears headed for less restriction.” This assertion is based on the fact that part of the proposed Financial Choice Act dismantles key parts of Dodd-Frank, which created the Consumer Financial Protection Bureau (CFPB), whose role will be redefined under a new name. The act–among other improvements–“removes the board’s opaque and ill-defined unfair, deceptive, or abusive acts and Practices (UDAAP) authority,” while still emphasizing consumer protection. The bill passed in the House on June 8 and goes to the Senate next for consideration.
Now that the election is over, there is much speculation about how a Trump presidency will impact our industry. Most everything we read is positive, especially about the future of automated overdraft programs.
In particular, we are encouraged by:
- Recent news articles regarding the future role of the CFPB
- Trump's promise to eliminate two regulations for every one enacted, including bank regulations
- A recent Federal Reserve-sponsored webinar that suggested the regulatory bodies are not looking for a major overhaul in overdraft programs, but instead are focusing on the inner workings of an overdraft program.
An August 17, 2016 article entitled, “Disparate impact studies especially tough on dynamic matrix systems,” caught our attention. The article, in our opinion, attempted to cast a negative light on “overdraft matrix systems” or overdraft processes that can cause a customer’s discretionary overdraft limit to change from time-to-time based on the risk profile of the customer.
On Friday, July 22, 2016, the Consumer Financial Protection Bureau (CFPB) published proposed rules and a request for public comment to establish a new consumer regulation that would regulate payday loans, vehicle title loans, and certain high-cost installment loans (“Covered Loans”).
The Bureau is particularly concerned that some lenders of Covered Loans fail to assess the consumer’s ability to repay the loan; it is also concerned with the practice of withdrawing loan payments directly from the consumer’s accounts.
For financial institutions seeking reliable and safe sources of additional fee income, this news is welcome indeed.
The current state of the overdraft industry can be summed up in one word, “WAITING.”
BSG Financial Group hears from some institutions that they are delaying offering an overdraft privilege program until the Consumer Financial Protection Bureau (CFPB) decides how financial institutions must manage consumer and business overdrafts.
This waiting reminds us of a quotation from the novelist Morris West who wrote, “If you spend your whole life waiting for the storm, you'll never enjoy the sunshine.”
We—banks, credit unions and service providers—have all been waiting for more than two years for the regulatory agency to finally announce its conclusions. Now it looks like mid-2018 before any material changes might occur. And even then, the changes recommended by Pew Charitable Trust (hired by the CFPB to handle the research aspects of their regulatory review) seem rather minor: revised disclosures, reasonable fees, and standard posting order.
In the meantime… while we wait, your account holders seek short-term liquidity elsewhere and your bottom line pays the price.
Most financial institutions acknowledge that overdraft fees represent a remarkable source of non-interest income. What may not be clear to some is the fact that overdraft privilege programs are more than just a source of revenue. Recent data suggests that the service offers as much of a benefit to the consumers who use it as it does to the institutions that provide it.
Consumer Financial Protection Bureau (CFPB) director Richard Cordray has said on many occasions that his agency is not looking to do away with overdraft services (but is instead leaning toward minor changes in how institutions manage the programs). As such, it doesn't appear overdraft programs are going away.
So how should community institutions view overdraft privilege in the current environment?
You might answer, 'Yes’ if you saw the headline, "CFPB Urges Banks to Ditch Overdraft Accounts," from an American Banker article published Feb 3, 2016.
However, if you read the entire article, you found that The Consumer Financial Protection Bureau (CFPB) director Richard Cordray was merely asking financial institutions—in a letter he sent to the nation's 25 largest retail banks—to consider providing products for consumers who cannot obtain checking services, and to "lower the bar" when it comes to screening them for those products.