By Joe Gillen
Congress is considering bills to ensure fair overdraft coverage, yet there are thousands of community banks and credit unions already offering fair, consumer-oriented overdraft protection programs. Rep. Barney Frank (D-Mass.) said, “Don’t do favors for people without asking them.” These institutions do ask. They fully disclose to their customers and members the overdraft protection services they provide when accounts are opened. They provide simple explanations of coverage and fees, notifications of program use and they ensure consumers are aware of their right to opt out of this service at any time, easily and immediately.
These community banks and credit unions offer overdraft programs with tolerance limits to preclude fees for small overdrafts and limits on the number of overdraft fees that can be assessed in any one day. They monitor customer and member activity to identify any excessive usage of overdrafts and assist those who need it by offering “work out” programs.
Community banks and credit unions that offer this type of overdraft protection do so because their customers and members value the service. An independent consumer poll taken by the American Bankers Association showed only 17 percent of consumers paid an overdraft fee in the last 12 months and almost all of them were glad to have their payments covered. This is especially true for low- and moderate-income consumers who don’t have access to lines of credit, other linked accounts or linked credit cards. For these consumers, a fully disclosed, fairly implemented overdraft protection program is a financial safety net and an important factor in their ability to maintain a banking relationship.
Like the consumer groups, many members of Congress have focused on the approach to overdraft protection taken by financial conglomerates like Bank of America, Citibank and others. While examples of their questionable practices are dramatic and make for good press, the reality is that there are thousands of community banks and credit unions being unjustly targeted without knowledge or understanding of the key differences in how they operate their overdraft protection programs. These institutions are integral parts of their communities, offering traditional banking services that their neighbors want and need. Denying their customers and members access to a service they choose to use isn’t protection, it’s presumption that people aren’t intelligent enough to make their own financial decisions.
To really ensure fair overdraft coverage, lawmakers should:
Use the overdraft protection programs offered by these community banks and credit unions as a model that is fair for both the consumer and the institution.
Stop treating the practices of financial conglomerates that may have “bank” in their names as representative of all banks and credit unions.
Allow consumers the freedom to control their financial transactions and deal separately with the few mega-institutions that take advantage of their customers.
Recognize that financial institutions can’t provide “real time” balances because they don’t know what checks have been written but not cashed, what debit card purchases have been made but not yet processed by merchants, or what transactions have been made through other institutions’ ATMs.
Acknowledge that consumers have the responsibility for managing their finances and for leaving financial institutions that don’t treat them well. There are plenty of quality community banks and credit unions who will welcome them.
Allow low- and moderate-income Americans continued access to fair, fee-based overdraft programs that help them retain their banking relationships and credit-worthiness.
Rather than passing unnecessary legislation, Congress should ensure regulatory agencies apply standards and requirements that reflect the consumer-oriented business practices of the approximately 14,000 community banks and credit unions who didn’t get us in this financial mess and who didn’t require taxpayer bail-outs. The media and consumer groups should continue to ferret out abusive practices, but also identify institutions that truly serve their customers. Telling only part of the story, while certainly sensational, doesn’t serve the greater good.
Consumers like having the safety net of fully disclosed, fee-based overdraft protection programs. They’ve said it and they’ve demonstrated it by patronizing their community banks and credit unions. Yes, one should ask before doing favors. It’s also important to listen to the answer.
Joe Gillen is chief executive officer of Pinnacle Financial Strategies. For 12 years Pinnacle has worked with more than 900 community banks and credit unions providing the best-in-class overdraft protection programs. The programs are fully disclosed, consumer-friendly and put the customer first.