Banks Fight Back Against Overdraft Reporting Requirement

WASHINGTON — A proposal that banks detail how much money they make from overdraft charges and other consumer fees has sparked fierce industry pushback and a broad debate on what should be included in financial reports given to regulators.

The three federal agencies that collect call report data have already delayed the plan, which would require granular information about consumer account fees. But bankers, who fear the reporting process focused on safety and soundness could become a tool for drafting consumer policy, are holding out hope regulators will scrap the plan entirely.

"The call report is designed to reflect a financial institution's financial position," said Anne Wallace, senior director of consumer financial services for the Financial Services Roundtable. "There is a structure there that has been used for years for a specific purpose. It is well-known in the industry, the public and the investor public as a tool for evaluating the financial institution's financial health. This seems like an addition that simply is out of character."

At issue is a February proposal by the Federal Deposit Insurance Corp., Federal Reserve Board and Office of the Comptroller of the Currency that said banks' current reporting of cumulative deposit account fees was insufficient to monitor how individual institutions are faring amid a variety of trends.

Regulators raised concerns that banks are heavily using consumer fees at a time when stricter regulations appear to be putting pressure on fee-related revenue. They also cited "other public purposes" for wanting the more detailed data, saying the changes "would significantly enhance the ability of the agencies and the [Consumer Financial Protection] Bureau to monitor consumers' behavior."

"Greater understanding of trends in overdraft fees and other deposit service charges is necessary to assess institutional health and enhance understanding of the costs and potential risks financial services pose to consumers," the agencies said.

But industry representatives said the plan was dangerous because it undermines the original intention of financial reports.

"It sounds a lot like market research rather than safety and soundness, which is what the call report is all about," said Wayne Abernathy, executive director for financial institutions policy and regulatory affairs for the American Bankers Association.

The proposal, which would have required substantial compliance to correspond with the June 30 call report, called for year-to-date breakdowns about consumer overdraft charges, monthly account maintenance charges, customer fees associated with using automatic teller machines and "all other service charges and fees" for a deposit account. It also called for new detailed information about banks' remittance transfers, and, for larger banks, new reporting about non-interest-bearing deposits and consumer money market accounts, among other requirements.

The agencies offered the proposal at a time when institutions are already under scrutiny for their overdraft charges. Large banks have faced criticism, for example, over whether certain transactions have allegedly been listed on account statements in a sequence meant to maximize overdraft fees. The Fed and FDIC have issued overdraft-related guidelines in recent years, and the CFPB is expected to announce results from its information-gathering exercise about overdraft practices and could issue new rules.

"Data specific to overdraft-related fees is particularly pertinent for supervisors and policymakers in part because of recent trends in such fees and because of concerns about the harm such fees may impose on some depositors," the proposal said.

But after getting critical comments from banks and industry groups, saying the new reporting plan was an inappropriate use of the call reports and compliance would pose technical difficulties that demanded more time, the agencies said in late May they would revisit the issue at a later date.

While they still opted to go ahead with less controversial reporting additions, the regulators said they would take more time to consider the proposed changes that had sparked the criticism — including all of the new deposit account fee items — and those changes would definitely not be implemented earlier than March 2014.

"The agencies are continuing to evaluate these proposed new call report items in light of the comments received," they said in a May 23 notice published in the Federal Register, adding that they would publish a new notice on those items when they "have decided whether and how to proceed."

Industry representatives have hailed the decision, expressing hope that the delay will allow for a reassessment of the parameters for the call report.

"It's important for us to have a dialogue on this in order for us all to understand why the regulators are doing this, whether there is good authority to do it, whether it's an appropriate use for the call report and whether we will have enough time to put the changes into effect," said Steven Zeisel, executive vice president and general counsel for the Consumer Bankers Association. "They've taken a major step by continuing to evaluate the proposal … and we hope this opens up an opportunity to engage the regulators in more dialogue."

James Kendrick, vice president for accounting and capital policy with the Independent Community Bankers of America, said tracking the quarter-to-quarter changes in aggregate fee income should be more useful to regulators monitoring the safety and soundness risks from account charges than looking at the fee totals piecemeal.

"If the agencies have concerns about banks' reliance on non-interest income sources, those concerns should be alleviated by the fact that that information is already disclosed," Kendrick said. "If a regulator was concerned about the changes in non-interest fee income, they would be able to see those changes over time. Those amounts should be looked at as a whole."

But consumer groups counter that banks should want to be more proactive about providing specifics about particular revenue sources, especially overdraft fees.

"I don't see why the information shouldn't be used by regulators for any of their supervision duties, and consumer protection is related to safety and soundness," said Lauren Saunders, managing attorney with the National Consumer Law Center. "The information is clearly important for regulators to know and banks that are not abusing overdraft fees should have nothing to hide."

Rebecca Borne, senior policy counsel for the Center for Responsible Lending, said the volume of overdraft fee income has been "buried" in the reporting for too long.

Banks' overdraft practices have "over the course of the last decade … been subject to intense regulatory scrutiny by the prudential regulators, always in part due to the safety and soundness concerns that those fees have caused over the years," Borne said. "The one purpose of the call report is to aid the risk evaluation at banks and so it only follows that a revenue line that has been so subject to scrutiny should have more transparency for the regulators that are charged with examining those banks."

She added that consumer protection and safety and soundness are "interwoven concepts."

"At the end of the day a product that poses severe consumer protection risk is going to pose safety and soundness risk as well," Borne said.