Back in March, Acting Comptroller Michael J. Hsu made remarks at a Consumer Bankers Association event and conveyed his belief that institutions …can improve the effectiveness of their compliance risk management programs by developing a strong internal sense of fairness.
One area he incorporated into this idea of “fairness” was overdrafts. Overdrafts are an area where actual regulations have been nonexistent or outdated and, for a long time, there also wasn’t much guidance. And with technological advances, a lot of the available information didn’t always address what was happening in the real world. Thus, it can be difficult for institutions to do the right thing or even know what that is. The Acting Comptroller gave this regulatory insight into how we arrived at where we are:
What …began as an accommodation steadily grew into a profit center…most would agree that a financial product that is predatory and entices vulnerable populations into high-cost debt traps for non-essential purchases is not consistent with the notion of fairness. The product may be legal, as constructed and marketed. It may technically comply with regulations as they have been understood and applied to date. But the product is not fair when over-used by certain consumers…having a clear sense of where this fairness line is prior to the development and launch of such a product can help a bank avoid compliance risk issues down the road, when the product has grown and consumer harms are more apparent.
It's no secret that the regulatory bodies do not like overdrafts and we are finally starting to see the wheels turning as far as rulemaking is concerned. Acting Director Hsu praised the fact that overdraft fees from OCC-regulated banks had decreased more than 40% and institutions are making “pro-consumer” changes to their overdraft protection programs.
Published
2024/06/28
