Michigan credit union slashes overdraft fees amid CFPB pressure | Credit Union Journal

WASHINGTON — As regulatory pressure on fees accelerates, LAFCU said it would lower its overdraft and nonsufficient fund fees to 99 cents, down from $32. 

“By reducing these fees, we are further prioritizing our members,” said  Patrick Spyke, CEO of the Lansing, Mich.-based LAFCU, in a statement. “It’s a reflection of who we are as a credit union—driven by the philosophy of ‘people helping people.’ At LAFCU, we’re focused on helping members reach financial stability, which in turn can lead to greater opportunities for generational wealth building.”

The change is effective as of Monday. 

The reduction in overdraft and nonsufficient fund fees comes amid a wave of actions in Washington D.C. and elsewhere. 

The New York Department of Financial Services this month has proposed banning state-chartered banks from charging overdraft fees on transactions of $20 or less. The proposed rule would also ban banks from charging more than three overdraft or nonsufficient funds fees per consumer per day.

The Consumer Financial Protection Bureau last year released an overdraft rule that caps  overdraft fees at $5 for the largest banks, which immediately drew a legal challenge from the banking trade groups. 

“CBA had no choice but to pursue legal action to counter the CFPB’s blatant statutory overreach with its misguided rule to ensure consumers continue to have access to liquidity through overdraft services,” said Lindsey Johnson, president and CEO of the Consumer Bankers Association, at the time. 

As part of the lawsuit, the bank groups filed a preliminary injunction arguing that the CFPB exceeded its authority by classifying overdraft fees as credit under the Truth in Lending Act. The groups claim that a $5 cap — termed the “breakeven” cost on overdraft fees by the agency — is “a substantial threat of irreparable injury” to banks and that the public interest favors an injunction.

The incoming Trump administration could overturn the CFPB’s  rule, but it’s popular with much of the Republican party’s base, so doing so could present political challenges. The Trump administration has also left the CFPB alone, including Director Rohit Chopra, who bank groups wanted dismissed on day one of Trump’s new term. 

Many big and regional banks preemptively have significantly lowered these fees, especially during the COVID-19 pandemic. 

Bank of America said in January 2022 it would reduce its overdraft penalty from $35 to $10. 

Huntington Bancshares, M&T Bank Corp. and First Citizens BancShares have each cut theirs to $15 or less.

Some large banks like Wells Fargo and JPMorgan Chase still charge roughly $35 per overdraft, but have made it easier for customers to avoid doing so by giving them a bigger cushion or quickening the availability of direct deposits. 

The CFPB’s rule, however, would only limit overdrafts at the largest banks, and wouldn’t impact the banks that tend to more heavily rely on overdraft and nonsufficient funds, which are a limited number of community banks. 

While most banks don’t have nearly those exposures, banks with less than $10 billion in assets are generally more reliant on overdrafts and got 0.84% of their revenues from the fees, according to KBRA Financial Intelligence data. 

“If enacted, the CFPB’s restrictions would have a negative ripple effect on customers and businesses that rely on overdraft services by causing them to experience the harsh realities of rejected payments,” Independent Community Bankers of America CEO Rebeca Romero Rainey said in a statement shortly after the CFPB’s proposed rule was released. 

The CFPB’s rule would not apply to larger credit unions. 

Data from the National Credit Union Administration  shows 443 credit unions charged some $916 million in overdraft-related revenues in the first quarter — accounting for 3% of their revenues. That figure also includes nonsufficient fund fees. 

In addition to overdraft fees, the figures included nonsufficient fund fees that are charged when institutions decline a purchase.

In a letter to credit union leaders in December, NCUA Chairman Todd Harper warned that some practices, such as charging an overdraft when customers have positive balances when a pending would turn their balance negative, would be looked at with scrutiny at the regulator. 

“The NCUA does not expect credit unions to cease offering overdraft programs designed to assist their members in managing their cash flow needs,” Harper said in the letter. “However, the NCUA will continue to review overdraft programs to ensure credit unions are effectively managing the heightened risk of certain fee practices and will expect credit unions to properly mitigate such risks, including by ceasing unanticipated fee practices.”