NCUA Vice Chairman Kyle S. Hauptman during a meeting of the NCUA Board.
As Prepared for Delivery on May 22, 2024
“No regulation or law passed by government repeals the laws of economics.”
I would like to use this meeting to talk about the NCUA’s recent decision to require credit unions with assets $1 billion and over to publicly publish their revenue from overdraft fees and fees for insufficient funds.
No one likes paying those fees. I have paid them myself. But anytime you wake up and owe $X that day but have less than $X available, there are only a series of bad options. We are pressuring credit unions to limit what is often the least-bad option for members under financial stress.
I’m also aware that there are policy changes the federal government can make to reduce those sticky financial situations, just by making the existing financial system work better. As much as one-third of all late fees and overdrafts could be eliminated with faster payments that get people their money quicker, which is something Senator Schatz of Hawaii often mentions.
The reason for my comments today is that we have not discussed change in the 5300 Report at a Board Meeting, and yet I can’t go to any event without being asked the same questions: “Why are you doing this to us? Do you realize how harmful it is to members?”
My answers are, I wish the NCUA was not doing this – especially on such short notice – and finally yes, I do realize how harmful it is to consumers.
I found out about this burdensome requirement in January. In lieu of repeal, I have suggested several ways to make it less damaging to both credit unions and to the Share Insurance Fund. For example, the same data could be collected in a manner where it’s available to NCUA examiners and we only publish aggregate data. We could also listen to those pleading for adequate time to prepare, and not publish the data until next year, especially since it’s been harder than expected to figure out what numbers are to be used for each category. All my ideas were rejected. Credit unions will now face reputational risk for data that neither the NCUA nor the credit union knows to be correct.
So, we are now yet another agency mathematically incentivizing institutions to avoid serving low-income people. This policy is very clear: don’t serve the underserved.
We are now working against the Federal Credit Union Act, which states credit unions are “to create credit…for those of modest means.” Well, it’s not the rich that are going to worry about overdraft protection being removed. It’s not those with secure, high-paying jobs that will suffer from a further reduction in offers for ‘free checking accounts.’ And make no mistake, the NCUA’s requirement is designed to pressure those fees downward, since one of the main reasons credit unions want more time to comply is to lower these fees and to try to raise revenue in other ways and re-evaluate their business models.
We have seen this movie before. In 2010, the Dodd-Frank Act reduced access to free checking. The bill had a provision on debit cards that contained government price-setting, a provision that mathematically made it less profitable to serve low-income people. The outcome was as painful as it was predictable: ‘free checking’ fell away significantly as new requirements kicked in for direct-deposits, higher minimum balances, etc. Anyone who can’t meet those requirements has to pay monthly account fees or lose access to the banking system.
Doesn’t it seem odd for someone to support the regulations that make it infeasible to serve low-income people, and then talk about ‘financial inclusion’ and lament the millions of Americans who are unbanked? It reminds me of the story about the guy who killed his own parents and then asked for leniency because he’s an orphan.
Can we guarantee the SIF is better off because of this? Nope. And yet we are adding regulatory burden.
But two beneficiaries of this misguided interference are two interest groups: 1) those who benefit politically, and 2) members of the media, who get to write click-bait articles that are often devoid of financial or business literacy. We have already seen this happen.
It goes without saying that none of the people supportive of these policies will be there with their own money to you offer a better deal when you’re a few bucks short and desperately want to avoid a $500 late fee.
That’s what will eventually happen. Overdraft protection, in particular, will become less common. Overdraft is when a credit union pays part of your bills for you when your account doesn’t have enough. Anyone at a banking institution will tell you the most distraught customers are not those whose bills were paid via overdraft, much as they may not like the $30 fee. Nope, the distraught customers are those customers upset that a bill wasn’t paid due to insufficient funds, forcing them to pay much higher costs.
Anyone would rather pay $30 than a $500 late government fee. What about someone in my position, a few years ago, who owed $4,000 to my state government, and was forced to pay $1,000 extra for being one day late. If my account was a few bucks short of $4,000, would I rather pay a $30 overdraft fee or the extra $1,000 to the government?
Years ago, I was trying to live in an expensive city on $27K a year salary while paying student loans. I went to go to work and saw that my car was gone and called the police. Turns out it was towed for late registration. Back then, I was constantly juggling payments trying to avoid the highest costs of being broke. The highest costs were, and are, invariably charged by the same governments that lecture the private sector. Governments charge fees and use coercive tactics that are significantly worse than anything labeled a ‘junk fee.’ And yet, we rarely hear about that from self-proclaimed ‘consumer protection’ advocates.
Anyway, about my car that was towed: I wound up paying 6x the registration fee, after paying the government for impound costs and other charges. But I was lucky, I had a salaried job and could call work and said I couldn’t come in that day. Millions of Americans in that situation would lose a day’s pay.
Then there are those whose government had towed their car or put a boot on it, causing them to be late to work and thus violate their parole. Of course, you would pay $30 to avoid that. That’s the real-world reality people live in every day. *Anyone* whose account is slightly short of money would rather pay a $30 overdraft fee than miss the child support payment that is the only way they can get visitation to see their kid that year.
That’s the real world. I do agree there are only bad choices for those short of cash. There may be policies to make life more affordable and less inflationary. But the NCUA’s recent policy on overdraft and NSF fees is not among them.
We can’t pretend that government artificially forcing down the price of something won’t have major negative effects. We also can’t pretend that it makes sense for the NCUA to make interest rate risk our top Supervisory Priority the same year we’re pushing credit unions away from non-interest income.
Because no regulation or law passed by government repeals the laws of economics.