On December 8, 2021, Acting Comptroller of the Currency, Michael J. Hsu, spoke at the Consumer Federation of America’s 34th Annual Financial Services Conference. With the conference’s theme, “Reforming Overdraft Programs to Empower and Promote Financial Health”, Hsu talked about bank overdraft practices and how it contributes to income and wealth inequality.
Hsu explained that when overdraft programs were created in the 1990s, they were intended as consumer convenience for infrequent and limited use to cover checking account shortfalls. However, the routine and recurring use of overdraft programs became the norm rather than the exception which led to banks using overdrafts and NSF fees as an income-generating activity. Complaints filed by consumers with the OCC and other regulators increased which ultimately resulted to financial regulatory agencies issuing a joint guidance on responsible disclosure for, and administration of, overdraft protection programs.
According to Hsu, overdraft programs are currently changing and the outlook for meaningful reform is promising. He also added that policymakers, advocates, and banks should also consider using financial health as an additional yardstick by which to assess banking access, products, and services.
“The OCC staff’s review of overdrafts has identified several features of bank overdraft programs that could be modified or recalibrated to support financial health. These include banks
requiring consumer opt-in to the overdraft program.
providing a grace period before charging an overdraft fee.
allowing negative balances without triggering an overdraft fee.
offering consumers balance-related alerts. • providing consumers with access to real-time balance information.
linking a consumer’s checking account to another account for overdraft protection.
collecting overdraft or NSF fees from a consumer’s next deposit only after other items have been posted or cleared.
not charging separate and multiple overdraft fees for multiple items in a single day and not charging additional fees when an item is re-presented.”
Hsu concluded by saying that he looks forward to more OCC-supervised banks adopting overdraft practices that promote consumer financial health and greater income and wealth equality.
The full speech can be found here.