Archived: When Consumer Protection Doesn’t Protect Consumers


The actions of a handful of financial giants have consumer advocates pushing back, and rightly so. While the current trend these days is to paint all financial institutions as “predatory” or “abusive,” the brush they’re using to write the new laws may cast so broad a stroke as to hurt the very consumers these laws are intended to protect.

Take, for example, the case of overdraft protection programs. Loosely defined, this is the action the bank takes to cover your payments and withdrawals when there’s no money in your account. What was once offered to customers as a welcome courtesy has now become the center of a media and legislative maelstrom.

The point they’re missing is that not all overdraft protection programs are created equal. There are significant differences between how your local community bank or credit union operates their overdraft program and how megabanks (which are most commonly portrayed in the media) operate theirs. A key difference is communication to consumers. Overdraft protection programs typically offered by community banks and credit unions are fully disclosed. That means consumers get a simple, complete explanation of how the program works, what it costs, how they’ll know they’ve used it, and how they can opt out of the service if they don’t want it. It’s not a secret and it’s optional. These fully disclosed programs typically have tolerance limits that preclude fees for small overdrafts — no $40 cup of coffee. They also have limits on the number of overdrafts customers can have in one day — no $600 in fees because you picked up a few incidentals around town. And they watch out for consumers so they don’t get in over their heads. After all, the purpose of the service is to keep customers.

Fully disclosed overdraft programs also acknowledge that all consumers are not created financially equal. Many low- and moderate-income consumers don’t have access to lines of credit, savings accounts or linked credit cards.  For these consumers, a fully-disclosed, fairly-implemented overdraft protection program is a financial safety net and an important factor in their ability to maintain a checking account.

Consumers must have realistic expectations of their banks and credit unions. They can’t provide “real-time” balances. Banks simply process checks and transactions they receive from merchants and others whenever they are sent. Checks that haven’t cleared, debit card purchases that haven’t been processed by merchants and ATM withdrawals outside the bank’s system will “post” to an account only when the bank receives the transaction. Account balances reflect only the checks, purchases and withdrawals that have been sent to banks. However, overdraft fees are completely avoidable when consumers monitor their own accounts.

As the discussion continues in Washington and across the country, consumers should watch carefully to see that their elected officials vote with complete information, instead of with mob mentality. Media and advocacy groups will always focus on the extreme or exceptional behaviors that may well warrant regulation. But consumers need to stand firm in asking legislators to know the differences between consumer-oriented overdraft programs and those that have made the news. A disclosed overdraft protection program offers an important financial service, and is in fact one that deserves safeguarding under any new consumer protection laws.

Joe Gillen is Chief Executive Officer of Pinnacle Financial Strategies, which provides overdraft protection programs to more than 900 community banks and credit unions.

Posted - Copyright © 2022 Eastern Group Publications, Inc.

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1 Comment

  1. Dawn Schwering on

    Thank you!!!! Banks have been getting hammered on extreme and sensational info. One of the business units I oversee is our overdraft program and we have operated a responsible, risk balanced program that serves our customers well. This program has helped our customers avoid reputational disasters and has prevented even higher returned fees charged by merchants. Thanks for helping to educate consumers on the whole story!

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