Acting Comptroller Hsu Calls for Overdraft Fee Reform at CFA’s Financial Services Conference
At CFA’s 34th Annual Financial Services the Acting Comptroller of the Currency Michael Hsu explained how overdraft practices contribute to income and wealth inequality and outlined what banks can do to reform overdraft programs.
The Consumer Financial Protection Bureau (CFPB) released a report analyzing traditional bank overdraft programs, finding that in 2019 banks earned $15.5 billion in overdraft and non-sufficient fund (NSF) fees. Earlier, the CFPB found that nearly 80 percent of all overdraft revenue is borne by fewer than 9 percent of consumer accounts whose account balances average $350 paying 10 or more overdrafts per year.
The increase in the usage of overdraft fees has coincided with the increase in consumer complaints filed with the OCC and other regulators, leading various consumer groups, including CFA, to call for reforms. Some banks, like Capitol One and Ally, have eliminated overdraft fees.
“Our goal should be to improve people’s financial health,” said Acting Comptroller Hsu. This means improving customers’ ability to spend, save, and borrow “so that they are empowered rather than hindered.”
After reviewing overdraft practices, the OCC identified several features of bank overdraft programs that could be modified to support financial health, including:
- Requiring consumer opt-in to the overdraft program,
- Providing a grace period before charging an overdraft fee,
- Allowing negative balances without triggering an overdraft fee,
- Offering consumers balance-related alerts,
- Providing consumers with access to real-time balance information,
- Linking a consumer’s checking account to another account for overdraft protection,
- Collecting overdraft or NSF fees from a consumer’s next deposit only after other items have been posted or cleared, and
- Not charging separate and multiple overdraft fees for multiple items in a single day and not charging additional fees when an item is re-presented.
“We appreciate Acting Comptroller Hsu’s recognition that these exorbitant fees contribute to wealth inequality, but the reforms he put forth are modest as much more is needed to halt this predatory practice,” said Rachel Gittleman, CFA’s Financial Services Outreach Manager. “Overdraft fees can cost consumers hundreds in a single day, pushing people out of the banking system. That’s why we have called on federal regulators to use their rulemaking authority to protect consumers from abusive overdraft charges, and we look forward to working with them towards that goal.”
Report Concludes that Climate and ESG Disclosure Rules Should be Written by the SEC, Not Third Parties
The Consumer Federation of America and the Center for American Progress (CAP) released a joint report this month recommending that the Securities and Exchange Commission (SEC) develop and maintain climate and other environmental, social, and governance (ESG) disclosure standards itself, instead of delegating this authority to private third parties.
The primary question this report set out to answer was one posed by then Acting SEC Chair Allison Herren Lee in her March 15, 2021, request for information on climate-related financial disclosure: “…whether the Commission should designate an external third party to carry out the function of establishing ESG-related disclosure standards.”
The report outlined three basic options for the SEC, were it to delegate ESG standard setting to a third party, which are:
- Full delegation of disclosure standard setting to an external third party, including the continual updating of those standards;
- Partial or hybrid delegation of standard setting in which the SEC would set core disclosure rules and then designate one or more third-party standards as sufficient to meet those reporting obligations; and
- Incorporation by reference of existing third-party standards into the SEC’s own rules.
After careful review of these options side-by-side with the relevant legal and policy implications of each choice, the report’s authors ultimately determined that none of them were likely to be as effective or resilient as keeping the ESG standard setting process fully in-house with the SEC and its staff. They argue that the advantages to the SEC developing and maintaining ESG rules would “not only reduce legal uncertainties” but also “be at least as efficient as using an existing outside framework,” and would “enable adequate comment from investors, other market participants, and the public.”
“This report offers a careful review of the SEC’s options regarding pathways to leverage external ESG standard setters,” said Dylan Bruce, CFA’s Financial Services Counsel and a co-author of the report. “The clear consensus is that a standard setting process, carried out internally by the Commission is the best avenue to ensure decision-useful standards for investors and produce a politically and legally durable ESG disclosure framework.”
CFPB Needs to Address Equal Access to Online Complaint System for LEP Consumers
CFA joined a coalition of consumer, civil rights, and housing organizations urging the Consumer Financial Protection Bureau (CFPB) to address equal access to CFPB’s online complaint system. Currently, the complaint system does not allow limited-English proficient (LEP) consumers to submit complaints in their language online.
In the letter the coalition indicated that “the complaint process prevents effective enforcement of CFPB regulations within Latinx and other communities with LEP consumers, making it easier for abuses and legal violations to remain unaddressed in the communities with great need of the Bureau’s assistance.” The CFBP must “provide access to the online complaint system in Spanish and other languages commonly spoken by LEP individuals across the country.”
Roughly nine percent of the U.S. population are considered LEP, and LEP individuals “continue to face barriers in the mortgage and credit markets, as well as a lack of adequate oversight and enforcement to protect their rights in the financial marketplace.”
To effectively protect Latinx and other LEP individuals and eliminate the legacy of discrimination these groups face in the financial market “the CFPB must ensure that its core services, such as the online complaint system, are fully accessible,” the organizations wrote.
“LEP and Latinx communities have been excluded from the financial services marketplace and targeted by predatory actors for far too long,” said Rachel Gittleman, CFA’s Financial Services Outreach Manager. “The complaint database is a powerful tool for both consumers to seek aid and for the Bureau’s supervisory and enforcement work. The Bureau must provide equal access to this critical tool.”
FAIR Fees Act Will Expose Airline Hidden Fees
CFA joined several consumer advocacy organizations in support of the bipartisan Forbidding Airlines from Imposing Ridiculous (FAIR) Fees Act of 2021. This bill would protect consumers from unreasonable airline fees that have been re-imposed as demand for flights rebound from the COVID-19 pandemic.
In a letter to the House Committee on Transportation and Infrastructure and the Subcommittee on Aviation, the organizations wrote that this bill would “bring much-needed relief to travelers by requiring fees to be reasonable and reflect the actual costs of the services provided.” The bill would also direct the Department of Transportation to review any other fees charged by airlines, along with working to reduce airlines’ untaxed revenue.
In 2019 alone, U.S. airlines collected $5.8 billion in baggage fees. These fees, on top of expensive change and cancellation fees are “especially punitive as consumers cannot plan for unexpected events that force them to adjust their reservations,” the organizations wrote. These factors, alongside the fact that 80 percent of domestic air traffic in the U.S. is captured by only four U.S. airlines shows the “non-competitive nature of the industry,” which has “allowed predatory practices to go unchallenged for too long” the organizations wrote.
“While many airlines stopped charging change and cancellation fees to encourage consumers who were concerned that the pandemic might disrupt their travel plans to buy tickets anyway, this was only temporary,” said Susan Grant, CFA Director of Consumer Protection and Privacy. “These policies are now changing, and steep charges for baggage and other services have continued to be assessed with seemingly no relation to what it costs to provide them. Consumers need real relief from unjustified fees that can add hundreds of dollars to the advertised prices for air travel.”
Country-of-Origin Labeling Needed for Beef Products
CFA joined a coalition of hundreds of organizations urging congressional leaders to enact the American Beef Labeling Act of 2021 (S.2716). The Act would reinstate mandatory country-of-origin labeling (M-COOL) for beef sold at retail grocery stores and inform consumers about where the producing animals were born, raised, and harvested.
According to the organizations’ letter to Congress, the 2015 repeal of M-COOL for beef has fueled “concerns that a consolidated and uncompetitive beef packing industry is exploiting consumers, workers, and ranchers alike.” Enacting this legislation would “promote a safe and affordable supply of wholesome beef for America’s consumers; a fairer, more competitive market for America’s cattle farmers and ranchers; and quality family-sustaining jobs for meat processing workers.”
A CFA-commissioned poll showed that reinstating M-COOL for beef is widely popular with consumers, with 89 percent of Americans strongly supporting mandatory country-of-origin labeling for fresh meat.
“Federal policymakers have allowed an unaccountable, unelected international tribunal to veto labeling requirements supported by the vast majority of Americans,” said Thomas Gremillion, CFA’s Director of Food Policy. “This bill stands up for the consumers’ right to know, and in a way that honors U.S. trade obligations.”