NCUA Board Member Todd M. Harper Statement on the Notice of Proposed Rulemaking on Overdrafts

As Prepared for Delivery on December 17, 2020

Thank you for your presentations, Scott and Alison. While I appreciate the staff time spent on this matter, I could not support the proposed rule on overdraft policies in May, and I cannot support it now. In my view, the NCUA is missing a real opportunity to provide credit union members who are suffering because of this financial crisis with some substantive relief.

In considering this matter, we ought to listen to consumer advocates like the Center for Responsible Lending, Self-Help Federal Credit Union, Self-Help Credit Union and the National Consumer Law Center. In their June 10, 2020, letter to us, they lay out the simple truth about this policy change: “The proposal fails to offer members relief from overdraft fees so desperately needed during the COVID-19 crisis, while subjecting members to additional risks from overdraft programs.”¹ 

Specifically, they note that: “The overdraft fee practices of many federal credit unions are fundamentally detrimental to members and inconsistent with the very definition of ‘Federal credit union’ in the Federal Credit Union Act: ‘a cooperative association organized ... for the purpose of promoting thrift among its members and creating a source of credit for provident or productive purposes.’² Rather than promote sound financial management, so-called ‘courtesy’ overdraft fee programs undermine it. Rather than provide credit for provident or productive purposes, these overdraft fee programs make it harder for members to regain their financial footing, or kick them off the ladder altogether.” ³

I very much agree with their analysis. What is more, those households hit by persistent overdraft fees often have their checking accounts closed. That makes it difficult to reenter the financial services mainstream. And, Black and Hispanic consumers are “disproportionately harmed by overdraft fees.” ⁴ Thus, the reality is that overdraft programs are products of financial exclusion, not financial inclusion.

Since the start of the pandemic, American workers have filed more than 90 million unemployment claims, and we know that women and people of color have been more likely to lose their jobs. As of the end of November, the national unemployment rate was 6.7 percent. That rate was disproportionately higher for Black and Hispanic workers. 

The pain is real for these communities.

Millions upon millions of households are suffering in this economic crisis. The NCUA Board should have used this opportunity to take bold action to help those credit union members in need. We should have worked to provide them with a safety net and put them on a firmer financial foundation for the future. We could have done things like:

• Protecting credit union members from the repayment of negative balances through a single balloon payment from their next deposit;
• Prohibiting “sustained” or “extended” overdraft fees;
• Requiring overdraft fees to be reasonable and proportional to the cost to the credit union; or
• Limiting to the number of fees charged per year or per month.

The NCUA Board should have taken any of these steps to shield households from the escalating economic fallout of the pandemic and provide relief from overdraft programs. Instead, we are taking actions to benefit credit unions over their members.

Credit unions should be offering members an amortizing loan to clear the negative balance — undoubtedly in the better interest of the member — sooner rather than later. But, by extending the timeframe for negative balance resolution beyond 45 days, the proposed rule before the Board today would lengthen the period for which a credit union can maintain its effective super-lien position over its members.

And, under this proposal, credit unions will be allowed to charge off the overdraft after about 60 days, and still have the right to offset. That means the credit union can maintain its super lien and garnish its member’s income to pay off the overdraft debt.

During the last nine months, the NCUA has done much to protect the safety and soundness of federally insured credit unions, and credit unions are participating in numerous government programs to help them stay liquid and make loans. Credit union members, in return, deserve to see some real relief from the NCUA. In actuality, this rulemaking does little to provide credit union members with “the flexibility needed to cope with the impacts of COVID-19.”

Finally, as part of this proposed rule, the agency is raising questions that it should have asked and answered before issuing this proposal. Let me read just one: “What specific difficulties or adverse outcomes have you encountered as a result of the 45-day time limit in 12 CFR 701.21 during COVID-19?” That’s justification after the fact.

Going forward, my hope is that the NCUA Board will step up and work to help credit union members in harm’s way — not just the credit unions. In my view, it is unacceptable to use this crisis as an excuse for financial deregulation. 

For all of the policy reasons I have laid out, I will oppose this proposed rule. Thank you, Mr. Chairman. I have no further comments.