As the controversy around the impact of overdraft protection on lower income people continues, credit unions have received the latest warning. 

Last week, the NCUA, which regulated federal credit unions, announced that credit unions considering bounce protection programs to boost fee income need to carefully evaluate the impact of these types of programs on their members.

NCUA Chairman JoAnn Johnson also recognized that there is a very real potential for members to receive repeated overdraft charges.  These charges may have a substantial negative impact on their financial well-being.

Bounce protection programs are not considered loans under federal regulations, making them exempt from the Truth in Lending Act--a decision which Woodstock Institute opposed during a recent federal request for comments. 

A study on the high cost of bounce protection offered by Chicago-area banks found that fees for most bounce protection loans range from $25 to $35, and many had daily maintenance fees.  In fact, the cost for a two week overdraft of $200 comprised of five debits was about $186.

Woodstock Institute agrees with the NCUA.  Any financial institution should carefully review the negative impact this type of product can have on the financial health of its lower-income customers.  Credit unions are no exception.

---

Bookmark with:

Comments (1)