Balance is key to consumer protections, says CUNA

WASHINGTON (3/20/09)—Balance, the Credit Union National Association (CUNA) testified Thursday, will be the necessary key to successful legislation addressing overdraft protection programs and credit card practices.

Doug Fecher, who is president/CEO of Wright-Patt CU in Fairborn, Ohio, gave what he termed "the perspective of Main Street," on behalf of credit unions, on current bills drafted to improve consumer protections for both the services. He was testifying before the House Financial Services subcommittee on financial institutions and consumer credit.

Fecher said credit unions back the intent of legislation to protect consumers from abusive and deceptive practices. But, he insisted any law must create an equitable balance between those protections and the needs of service providers to be fairly compensated for the service and not subjected to unnecessary regulatory burdens.

Legislation that does not go far enough does not really help the consumer, Fecher said. But, he warned federal lawmakers, legislation that goes too far will have unintended consequences that could have the opposite effect than that intended.

For instance, Fecher said, as drafted the Consumer Overdraft Protection Fair Practices Act (H.R. 1456) could drive consumers into the grasps of the very "high-cost services" the legislation is intended to eliminate.

The proposed bill would classify overdraft protection products as lending products under the Truth in Lending Act (TILA) and include a service fee for the program to be within the APR calculation.

Therefore, Fecher testified, H.R. 1456 could force federal credit unions out of offering the bounce-protection plans, highly favored by consumers, by forcing them to bump up against their statutorily prescribed 18% usury ceiling.

The bill also has the potential to present significant operational issues for credit unions, Fecher noted, by requiring written agreement with the member prior to the extension of any overdraft coverage--even for those already used to being covered by protection plans.

Just as with overdraft legislation, Fecher said balance must be achieved under the Credit Cardholders' Bill of Rights Act (H.R. 627), which has been re-introduced this year after failing to be passed by the 110th Congress.

CUNA recognizes there are legitimate concerns about abusive credit card practices and backs efforts to end discriminatory, predatory, deceptive and abusive lending practices engaged in by some lenders.

But, the CUNA witness told the subcommittee, lawmakers must be vigilant to assure their action avoids unintended consequences that are ultimately adverse to consumers, including making credit more expensive and less available.

Sheila Albin, associate general counsel, National Credit Union Administration, also testified.

She cited results of a 2005 Woodstock Institute research that found federally insured credit union credit card products tend to have fewer fees, lower fees, and clearer disclosures. That study concluded there is a clear difference between credit cards issued by banks and those issued by federally insured credit unions.

"Federally insured credit union credit card programs show credit card lending is sustainable without exorbitant penalties and misleading terms and conditions," Albin said.

Other witnesses included:

Sandra Braunstein, director, division of consumer and community affairs, Board of Governors of the Federal Reserve System;
Montrice Yakimov, managing director, compliance and consumer protection, Office of Thrift Supervision;
Kenneth Clayton, senior vice president/general counsel, American Bankers Association Card Policy Council;
Linda Echard, president/CEO ICBA Bancard, on behalf of the Independent Community Bankers of America;
Ed Mierzwinski, senior fellow, Consumer Program, U.S. PIRG; and
Travis Plunkett, legislative director, Consumer Federation of America.

Use the resource links below to read CUNA's complete testimony on H.R. 1456 and H.R. 627, as well as to access NCUA's remarks.

courtesy of cuna.org