Credit Union Regulatory Guidance Including: NCUA, CFPB, FDIC, OCC, FFIEC

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Hello, this is Samantha Shares. This episode covers N C U A Vice Chairman and Board Member Kyle S. Hauptman statement on the agency’s Collection of Overdraft and Non-Sufficient Fund Data

 

The following is an audio version of that statement.    This podcast is educational and is not legal advice.  We are sponsored by Credit Union Exam Solutions Incorporated, whose team has over two hundred and Forty years of National Credit Union  Administration experience.  We assist our clients with N C U A so they save time and money.  If you are worried about a recent, upcoming or in process N C U A examination, reach out to learn how they can assist at Mark Treichel DOT COM.  Also check out our other podcast called With Flying Colors where we provide tips on how to achieve success with N C U A.

 

 

N.C.U.A. Vice Chairman Kyle S. Hauptman Statement on Nonsufficient Funds (N.S.F.) Fees

 

N.C.U.A. Vice Chairman Kyle S. Hauptman during a meeting of the N.C.U.A. Board.

“No regulation or law passed by government repeals the laws of economics.”

I would like to use this meeting to talk about the N.C.U.A.’s recent decision to require credit unions with 1 billion in assets and over to publicly publish their revenue from overdraft fees and fees for insufficient funds.

No one likes paying those fees. I have paid them myself. But anytime you wake up and owe $X that day but have less than X dollars available, there are only a series of bad options. We are pressuring credit unions to limit what is often the least-bad option for members under financial stress.

I’m also aware that there are policy changes the federal government can make to reduce those sticky financial situations, just by making the existing financial system work better. As much as one-third of all late fees and overdrafts could be eliminated with faster payments that get people their money quicker, which is something Senator Schatz of Hawaii often mentions.

The reason for my comments today is that we have not discussed change in the fifty three hundred Report at a Board Meeting, and yet I can’t go to any event without being asked the same questions: “Why are you doing this to us? Do you realize how harmful it is to members?”

"No one likes paying those fees. I have paid them myself. But anytime you wake up and owe $X that day but have less than X dollars available, there are only a series of bad options."

My answers are, I wish the N.C.U.A. was not doing this – especially on such short notice – and finally yes, I do realize how harmful it is to consumers.

I found out about this burdensome requirement in January. In lieu of repeal, I have suggested several ways to make it less damaging to both credit unions and to the Share Insurance Fund. For example, the same data could be collected in a manner where it’s available to N.C.U.A. examiners and we only publish aggregate data. We could also listen to those pleading for adequate time to prepare, and not publish the data until next year, especially since it’s been harder than expected to figure out what numbers are to be used for each category. All my ideas were rejected. Credit unions will now face reputational risk for data that neither the N.C.U.A. nor the credit union knows to be correct.

So, we are now yet another agency mathematically incentivizing institutions to avoid serving low-income people. This policy is very clear: don’t serve the underserved.

We are now working against the Federal Credit Union Act, which states credit unions are “to create credit…for those of modest means.” Well, it’s not the rich that are going to worry about overdraft protection being removed. It’s not those with secure, high-paying jobs that will suffer from a further reduction in offers for ‘free checking accounts.’ And make no mistake, the N.C.U.A.’s requirement is designed to pressure those fees downward, since one of the main reasons credit unions want more time to comply is to lower these fees and to try to raise revenue in other ways and re-evaluate their business models.

We have seen this movie before. In 2010, the Dodd-Frank Act reduced access to free checking. The bill had a provision on debit cards that contained government price-setting, a provision that mathematically made it less profitable to serve low-income people. The outcome was as painful as it was predictable: ‘free checking’ fell away significantly as new requirements kicked in for direct-deposits, higher minimum balances, etc. Anyone who can’t meet those requirements has to pay monthly account fees or lose access to the banking system.

Doesn’t it seem odd for someone to support the regulations that make it infeasible to serve low-income people, and then talk about ‘financial inclusion’ and lament the millions of Americans who are unbanked? It reminds me of the story about the guy who killed his own parents and then asked for leniency because he’s an orphan.

"That’s the real-world reality people live in every day."

Can we guarantee the SIF is better off because of this? Nope. And yet we are adding regulatory burden.

But two beneficiaries of this misguided interference are two interest groups: 1) those who benefit politically, and 2) members of the media, who get to write click-bait articles that are often devoid of financial or business literacy. We have already seen this happen.

It goes without saying that none of the people supportive of these policies will be there with their own money to you offer a better deal when you’re a few bucks short and desperately want to avoid a 500 dollar late fee.

That’s what will eventually happen. Overdraft protection, in particular, will become less common. Overdraft is when a credit union pays part of your bills for you when your account doesn’t have enough. Anyone at a banking institution will tell you the most distraught customers are not those whose bills were paid via overdraft, much as they may not like the 30 dollar fee. Nope, the distraught customers are those customers upset that a bill wasn’t paid due to insufficient funds, forcing them to pay much higher costs.

Anyone would rather pay 30 dollar than a 500 dollar late government fee. What about someone in my position, a few years ago, who owed four thousand dollar to my state government, and was forced to pay one thousand dollars extra for being one day late. If my account was a few bucks short of four thousand dollars, would I rather pay a 30 dollar overdraft fee or the extra 1,000 dollars to the government?

Years ago, I was trying to live in an expensive city on 27,000 dollars a year salary while paying student loans. I went to go to work and saw that my car was gone and called the police. Turns out it was towed for late registration. Back then, I was constantly juggling payments trying to avoid the highest costs of being broke. The highest costs were, and are, invariably charged by the same governments that lecture the private sector. Governments charge fees and use coercive tactics that are significantly worse than anything labeled a ‘junk fee.’ And yet, we rarely hear about that from self-proclaimed ‘consumer protection’ advocates.

"We can’t pretend that government artificially forcing down the price of something won’t have major negative effects. We also can’t pretend that it makes sense for the N.C.U.A. to make interest rate risk our top Supervisory Priority the same year we’re pushing credit unions away from non-interest income."

Anyway, about my car that was towed: I wound up paying 6 times the registration fee, after paying the government for impound costs and other charges. But I was lucky, I had a salaried job and could call work and said I couldn’t come in that day. Millions of Americans in that situation would lose a day’s pay.

Then there are those whose government had towed their car or put a boot on it, causing them to be late to work and thus violate their parole. Of course, you would pay 30 dollar to avoid that. That’s the real-world reality people live in every day. Anyone whose account is slightly short of money would rather pay a 30  dollar overdraft fee than miss the child support payment that is the only way they can get visitation to see their kid that year.

That’s the real world. I do agree there are only bad choices for those short of cash. There may be policies to make life more affordable and less inflationary. But the N.C.U.A.’s recent policy on overdraft and N.S.F. fees is not among them.

We can’t pretend that government artificially forcing down the price of something won’t have major negative effects. We also can’t pretend that it makes sense for the N.C.U.A. to make interest rate risk our top Supervisory Priority the same year we’re pushing credit unions away from non-interest income.

Because no regulation or law passed by government repeals the laws of economics.

 

This concludes the statement. 

 

If your Credit union could use assistance with your exam, reach out to Mark Treichel on LinkedIn, or at mark Treichel dot com.  This is Samantha Shares and we Thank you for listening.

 

 

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