Take Heed -- Interesting Statements from the Acting OCC Chief on ODP Reform by Banks
Todd Sherpy
Sr. Compliance Attorney at Sherpy & Jones / Sharing-Listening-Learning-Growing
Don’t be last Hsu said to the banks. Since 2005 I have been pushing all Credit Unions to consider the “Guidance” from OCC, FDIC and CFPB as a Segway to that reformation. I have also said that the most protective option to consider is just to discontinue ODP programs. However, the income derived from ODP programs always seems to divert the conversation. Nonetheless, I once again ask that you consider the guidance (discussed in detail in my ODP Webex from 2019 – provided gratis upon request – see below).?I encourage you to assess both the guidance and the options.
For example: In a project I ran with 20 Credit Unions in the last 6 months assessing the “occasional user” we found that a high APR Overdraft LOC scenario resulted in no substantial difference on the income derived. I understand that this was not a scientific assessment; and everyone’s assessment will vary, but the goal here is to think about: (1) The Guidance; (2) Consider Options; and (3) Determine a reformation approach based on all considerations. As Acting Chairman Hsu stated – you do not want to be the last to do so. The liability exposure is just too high.
What did Hsu Say? Expanding on his statement Chairman Hsu provided and op-ed and pointed to recent overdraft reforms taken by several OCC-regulated banks that may end up saving consumers more than $2 billion annually. Recognizing that these reforms are “just the start,” Hsu stressed that “[b]anks that hesitate to adopt pro-consumer overdraft programs will soon be negative outliers.” Hsu outlined several points banks should consider when implementing overdraft changes, including taking a “customer-oriented approach” and implementing meaningful changes with lasting benefits to both customers and the bank, rather than “taking a profit-oriented approach and reverse engineering costs to meet predetermined revenue targets.” Banks should also “use data to identify the reforms that help customers the most,” Hsu stated, including “grace periods that give customers time to cover overdrafts and avoid fees, grace amounts that allow customers to overdraft by certain amounts without a fee, and changes in posting order, i.e., the sequence in which payments are made, to limit repeat fees.” Additionally, banks should build on the “pro-customer” overdraft reform momentum when developing small dollar lending capabilities and considering other products, such as buy now/pay later and earned-wage access products. “The cumulative effect of these pro-consumer initiatives holds the promise of materially and sustainably improving the financial health of underserved populations and, by doing so, fortifying banks’ reputation for treating all customers, including the most financially vulnerable, fairly and thus earning their long-term trust,” Hsu said.
Reminder on the Guidance: The “Guidance” I referred to derives from all of the following.
?This Guidance is reflected in our CUPP online resources/options as well as our ODP Audits/ Assessments.
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We discuss the guidance in detail in the Webex noted above:
ODP – Everything: 1 Hour / 4 Minutes // Session Summary: This I categorize as a high-risk item everyone must have fully addressed from a legal, compliance and risk management and mitigation point of view. A single miss here can cost you dearly. Thus, we will cover the ODP Rules from the beginning, the history of regulatory actions and litigation, the lessons I have learned from ODP Compliance assessments to ensure you have a full understanding of the issues. Then we will address the specific disclosure obligations, compliance expectations and risk mitigation tools you should consider.
Available for review upon request.
I encourage you to give this topic due thought; and again – please give it as high a priority as possible.?
If you?do not have a specific agreement (written and signed) with Sherpy & Jones, P.A. covering legal, compliance or any other services, then the information above is merely an expression of opinion or to provide a reference for your own research, and nothing more. You agree that you have no right to rely on this communication which in no way constitutes any legal service or advice; and there is no attorney-client relationship between you or the company you work for and the sender or this law firm.?
COO BankSocial. Credit Union & CUSO Consultant. Crypto/ DLT Enthusiast, Educator and Author.
2 年I challenge us all to think like a fintech. We have so many options to consider! Let’s disrupt ourselves! We can do this.
CEO at Bessemer System FCU
2 年I'm wondering what you are recommending we say to all the members that opted in to these services because they wanted them and thought they provided something of value to them? Remember, these are not mandatory programs. No one has to agree to allow their credit union to help cover their overdrafts. We were probably one of the last credit unions to implement a courtesy pay program and we did so under pressure from these same agencies. "You aren't serving your members", "everyone else is doing it" "it's a great way to increase non-interest income". Now suddenly we are doing everyone a disservice by offering overdraft coverage and courtesy pay. Sounds a little schizophrenic to me. Our examiners have reviewed our courtesy program numerous times and found nothing wrong with it. Now suddenly everything is wrong with it.