---

Published: December 2011

OCC must drastically strengthen payday loan and overdraft protections

Coalition: Bank Payday & Overdraft

In a letter to the Office of the Comptroller of the Currency (OCC), Consumer Action and other members of Americans for Financial Reform comment on the OCC's proposed guidance on payday loans and overdraft programs.

Below is an excerpt from the letter:

We urge the OCC to dramatically strengthen its guidance, as follows:

1. Stop Payday Lending by Banks

Take immediate supervisory and/or enforcement action to stop Wells Fargo and US Bank from making unaffordable, high-cost payday loans.
In the alternative, impose an immediate moratorium on the bank payday product while collecting data to evaluate the appropriateness of the product, income, frequency of use and rollovers, impact on people of color, and impact on overdrafts and NSF fees and account closures. Permit only loans with that do not carry the abusive features characteristic of payday loans. Loans should be required to be repaid in affordable installments, rather than in lump sums; be reasonably priced, where cost of credit is expressed as an interest rate and any fees are reasonable; be underwritten based on an ability to repay, without needing to take out another loan shortly thereafter; and not be repaid through automatic set off.

2. Ensure High-Cost Overdraft Loans Are Not Used as a Routine Credit Product

Banks should not post transactions in order from highest to lowest and should minimize fees through posting order when feasible. The OCC's guidance strongly suggests that posting from high to low is inappropriate, but the OCC should be as clear as the FDIC was in the FAQs accompanying its recent guidance.

Banks should not charge overdraft fees on debit card transactions, which can easily be denied at no cost. The largest debit card issuer, Bank of America, stopped the practice last year; other national banks should follow suit. Ending overdraft fees on debit cards would go a long way toward ending "excessive use" which the FDIC's recent guidelines identified as more than six overdraft fees per year.

Overdraft fees should be reasonable and proportional to the amount of the underlying transaction, consistent with the FDIC's overdraft guidance and rules governing penalty fees on credit cards.

Overdraft fees should be limited to six per year, consistent with the FDIC␣s recent guidance, which identified more than six overdraft fees per year as excessive. High-cost overdraft programs are not a legitimate source of routine credit. For any brief period for which payday lending by banks might continue, this limit should apply to overdraft and payday loans combined.

While affirmative consent is a necessary requirement for any credit product, it does not replace the need for substantive reform. Banks should be required to obtain a consumer's "opt-in" before extending overdraft credit for any type of transaction, including checks, instead of automatically enrolling consumers in the most expensive and abusive type of coverage. This requirement should apply to both new and existing customers. But it does not replace the need for substantive reform.

3. Prohibit steering

Banks should not steer customers into higher cost credit than that for which they qualify. Every customer who desires credit should be informed about all credit and overdraft options and only be extended the lowest cost option for which he/she qualifies.

4. Encourage responsible products

For customers who do not qualify for traditional, low- cost overdraft coverage, banks should be encouraged to develop smaller credit lines consistent with the FDIC Small Loan Guidelines rather than make predatory loans to those least able to shoulder them. If consumers do not qualify for credit on responsible terms, banks should not extend them

Lead Organization

Americans for Financial Reform

Other Organizations

Americans for Financial Reform | Arkansans Against Abusive Predatory Lending | Bell Policy Center California Reinvestment Coalition | Center for Digital Democracy | Center for Responsible Lending Coalition on Homelessness & Housing in Ohio (COHHIO) | Coloradans for Payday Lending Reform | Communities Creating Opportunity | Community Housing Works, San Diego | Community Legal Services | Connecticut Association for Human Services | Consumer Federation of America | Consumers for Auto Reliability and Safety | Consumers Union | Empire Justice Center | Florida Legal Services | Greater Rochester Community Reinvestment Coalition | Kentucky Equal Justice | Legal Services of Southern Piedmont | Mid Minnesota Legal Assistance | National Association of Consumer Advocates | National Community Reinvestment Coalition | National Consumer Law Center (on behalf of its low income clients) | National Economic Development Advocacy Project (NEDAP) | National Fair Housing Alliance | National Latino Farmers & Ranchers Trade Association |New Jersey Citizen Action | PICO National Network | Public Justice Center | Sargent Shriver National Center on Poverty Law | SC Appleseed | The Leadership Conference on Civil and Human Rights | U.S. PIRG

Download PDF

No Download Available