By: Joe Gillen
The Consumer Financial Protection Bureau has zeroed in on overdraft protection and submitted a "Request for Information" on "Impacts of Overdraft Programs on Consumers." And community banks and credit unions are speaking up loud and clear.
Overdraft protection programs have received a firestorm of criticism as of late from regulators who are trying to clean up Wall Street to help repair Main Street. While their actions are admirable and necessary, new regulations involving certain banking products have had the opposite effect. Instead of protecting America from financial strain and unfair practices, new blanket regulations are actually hampering consumer choice and giving Americans fewer financing options.
This is a point made very clear in Pinnacle's response to the CFPB's inquiry into overdrafts. Comparing the banking products offered by Wall Street behemoth institutions to those provided by Main Street community banks and credit unions is similar to comparing apples and oranges. Megabanks have recently been inundated by several lawsuits regarding their overdraft policies, including manipulating the order of transactions to raise costs and charging excessive fees. Pinnacle provides comprehensive guidance and training to its large network of community banks and credit unions to avoid these practices and develop consumer-friendly overdraft solutions with sensible fees.
In fact, Pinnacle's "Critical Success Factors" outlines the various strategies small banks and credit unions should adopt to eliminate excessive overdraft fees and provide full disclosures of overdraft policies to consumers so that they are fully informed. Studies have also shown that while large banks have increased their service fees for overdraft protection programs, credit unions and small banks have held their fee structures steady or in some cases, reduced them.
These responsible overdraft programs have enabled community banks and credit unions nationwide to build relationships with their customers based on trust and integrity. Over-regulating effective and consumer-friendly overdraft programs will not only limit consumers' short-term financing options, but potentially weaken their financial profiles by forcing them to incur late payment fees and potential credit score damage. On a more personal level, being denied the funds to pay for groceries or gasoline can be embarrassing for a hard-working person who is struggling to make ends meet.
Reining in Wall Street and eliminating harmful financial practices is crucial to improving Americans' well-being and repairing the economy. However, regulatory agencies that fail to differentiate between local banks that serve the community and megabanks that serve themselves run the risk of imposing additional financial burdens on everyone.