By Neil Milner
President & CEO
The FDIC’s supervisory guidance on Overdraft Payment Programs, as distributed to state, non-member banks, highlights an important issue facing the banking industry and consumer finance. These programs provide an important service to consumers, but can present significant consumer protection issues. In an era where consumer protection in the financial services industry - which goes well beyond banking - has become front page news, we believe it is incumbent upon the industry and regulators to review the practices and standards with these programs.
Overdraft Payment Programs can provide an important level of financial protection for consumers. However, consumers can be placed at financial risk if they do not fully understand how the product works and the related charges. Consumers who are sold the product in a less than transparent manner will only feel harmed and ultimately distrustful of the institution which sold the product and the banking industry in general. We believe this is a fact which is well understood by community bankers, who live and work in the communities their institutions serve.
For this reason, we think the dialogue the FDIC has opened with the industry is an important opportunity. State, non-member banks have the occasion to share their experiences on how they educate consumers, provide reasonable protections over excessive use, and offer alternative products when necessary. Effectively deployed, these measures ultimately protect the bank’s reputation. The industry has the opportunity to help craft standards which provide reasonable consumer protections and ensure access to those who desire the services. Ultimately, these standards should apply to all banks regardless of charter type.
We strongly encourage the industry to engage in this dialogue with the FDIC.