Academic journal article ABA Banking Journal

Overdrafts Become Lightning Rod

Academic journal article ABA Banking Journal

Overdrafts Become Lightning Rod

Article excerpt

During ABA's Government Relations Summit last month, FDIC Chairman Sheila Bair addressed the group and took questions afterward in what became a contentious debate. The biggest divide was over overdraft protection programs and the FDIC's guidance issued last fall that recommends that banks counsel any customer incurring six or more overdrafts in a rolling 12-month period. Below is one of several exchanges on the subject, between Bair and Arthur Johnson, former ABA Chairman and CEO of United Bank of Michigan, Grand Rapids:

[ILLUSTRATION OMITTED]

BAIR The new standards are there only for those who use automated programs--most do not do that. But the "robo overdrafts"--recurring 10-12 times a month, as opposed to six times a year--our studies have shown, other studies have shown, are much more costly than a payday loan ... So I do consider overdrafts a reputational issue.

If you want people to be paying thousands of dollars a year in overdraft protection, is that good banking? All we're asking is [for banks to] identify who those people are and make sure they understand what they're doing. If they can qualify for a line of credit or a credit card, talk them through that.

JOHNSON I wonder whether or not you consider the totality of the effect on consumers? …

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