As the United States continues its fight against COVID-19, we must also work to contain the pandemic’s substantial damage to our economy. A key tool in this regard is regulatory reform.
The National Credit Union Administration (NCUA) has led the way on rethinking and modifying burdensome and outdated rules that hamper economic recovery for the credit union industry. A case-in-point is a recent NCUA rule change that would adjust regulations governing federal credit unions’ overdraft accounting policies. Though unfortunately tabled by the NCUA Board, the rule change is reasonable, prudent, and necessary, and will benefit credit unions and their members.
Like other financial services institutions, many credit unions offer optional overdraft protection programs for their members. If a participating member’s account is overdrawn, the credit union will, for a fee, cover the transaction. The member must then replenish the overdrawn account within 45 days, either by depositing funds or obtaining an approved loan from their credit union. In some cases, overdraft protection can serve as a form of short-term credit, offering credit union members greater peace of mind and flexibility in managing their finances.
During times of economic stress, in particular, access to short-term credit can be especially helpful. For a working parent on a reduced income, or a small business owner trying to keep her head above water until economic recovery begins, a quick source of affordable credit could help bridge the gap. Further, such access spares many credit union members from seeking financial relief from predatory lenders or high-interest credit cards.
More Consistent
The current rule carries a strict “not to exceed 45 calendar days” timeline for members to replenish the funds, but under the proposed interim final rule change, that period would be extended to give credit unions more time and flexibility to explore solutions that better meet their members’ needs. Such a change would also make the NCUA’s policies consistent with other federal financial regulators, which do not have a similarly prescriptive requirement, and Generally Accepted Accounting Principles.
Given the scope of our current economic challenges, I decided that expeditious implementation of this change in the form of an interim final rule would give credit unions and members immediate relief. The NCUA’s Office of General Counsel determined that this rule change – similar to other interim final rules approved by the Board – did not violate the Administrative Procedure Act and was therefore appropriate to be enacted as an interim final rule.
In the interest of transparency, I believed it was best to bring this rule change before the Board for fuller consideration so that we could have an open debate on the issue. When the issue was presented during the May 21, 2020 board meeting, members raised concerns about the rule change implementation process. More specifically, it was suggested that overdraft protection programs needed a broader rethinking and that overdraft fees should be capped.
While I respect my colleagues’ concerns and appreciate the reasonableness of these discussion topics, I believe they go beyond the limited and modest reform that was being considered in this case. Further, it is important to note that there was no procedural irregularity here. In fact, given the extraordinary headwinds we will face in moving the economy towards recovery, it is likely we will be using the interim final rule process as we consider additional expedited reforms that are permanent.
The Bottom Line
The bottom line is this: the interim rule change would not undermine important consumer protections. Credit unions already place a high value on consumer protection for their members, and the adjustment to the overdraft policy is consistent with credit unions’ long tradition of providing their members with quality, affordable financial services.
In these difficult and uncertain times, we should be seeking ways to help credit unions serve their members more effectively and with greater flexibility, while continuing to ensure the safety and soundness of the credit union system. That means we must think creatively about how we can help people in need of assistance today – not a month or more from now.
The referenced adjustment to the overdraft policy is a helpful step regulators can take now to help credit unions and their members, when the need is greatest. While I’m disappointed that we were unable to move forward with this prudent reform, I look forward to continued discussions with credit union leaders and my board colleagues on this issue so we can reconsider the rule change again in the near future.
Rodney E. Hood is chairman of the National Credit Union Administration.
Comments
Post a Comment
Please no profanity or political comments.