Overdraft protection has been a critical component of financial services for decades, originally instituted to provide an emergency safety net for credit union members. Since its adoption, the opt-in service has enabled credit unions nationwide to exhibit a high degree of flexibility and consumer-centricity in their unique approach to overdraft fees for their members.
In fact, data from the
- 98% of credit unions waive overdraft fees on a case-by-case basis
- 78% of credit unions intervene when a member engages in frequent overdrafts
- 71% of credit unions provide targeted outreach or education to members who miss payments
Despite the benefits of overdraft protection and the proactive measures our credit unions take to ensure appropriate use by their members, recent state legislation could have inadvertently limited our credit unions' members' access to this important service. As it was originally written, California's Senate Bill 1075 had the potential to push these individuals toward predatory payday lenders or other unregulated creditors.
Our league, representing more than 220 credit unions in California encompassing nearly 13 million members across the state, has successfully brokered critical amendments to SB 1075. This success is a testament to our ability to navigate legislative changes and find a middle ground that benefits all parties involved. The bill is now in committee, and we are closely monitoring its progress. Additionally, we are closely watching the federal Consumer Financial Protection Bureau's
As of June 26, SB 1075 will require state-chartered credit unions to provide a member a notice each time the credit union assesses an overdraft fee or nonsufficient funds fee. And, beginning Jan. 1, 2026, the bill would prohibit credit unions from charging an overdraft fee or a nonsufficient fund fee exceeding $14, or the amount set by the federal CFPB for the fee, whichever is lower.
Earlier this year, the CFPB issued a proposed national rule on overdraft protection that would provide two options for large financial institutions (those with assets over $10 billion, including some credit unions). The options for financial institutions would be to charge a benchmark fee set by the CFPB or demonstrate a "breakeven" point on overdraft protection to demonstrate that profits are not made on the service. The benchmark fee could range from $3 to $14.
Originally, SB 1075 required credit unions to provide members with at least five business days before requiring payment of an overdraft fee and the bill would have capped the number of fees that a credit union could have charged to three per month. We felt this altered how courtesy overdraft protection functions and provided no parity between state-chartered credit unions and Wall Street banks that would have not had to follow these burdensome requirements.
Now, rather than a five-day waiting period, credit unions have to send a notification to credit union members letting them know they have overdrawn their account or been assessed an NSF fee.
The bill was further amended to apply a one-year delayed implementation, giving all state-chartered credit unions until Jan. 1, 2026, for the fee cap portion of the bill. This year-long delay will give California credit unions time to reach parity with the federal CFPB overdraft fee cap proposal, which as it stands now, applies to financial institutions with $10 billion or more in assets. SB 1075, on the other hand, applies to all state-chartered credit unions, regardless of asset size.
Despite finding a middle ground with SB 1075, our league is still concerned because the CFPB has yet to finalize its proposal, which is anticipated in January 2025. The uncertainty of what amendments it might make that could impact our credit unions is a cause for concern. If the fee the CFPB selects does not cover the expenses of our overdraft protection and NSF programs, it could impact credit unions.
For more than 100 years, credit union members have utilized overdraft services as a financial tool, usually relying on them when in a financial bind. It's important to note that we never impose this service on our members. In fact, per federal law,
Our member credit unions are committed to advocating for their members to have the opportunity to choose the financial services that best suit their needs, which is why we'll continue to monitor SB 1075 and advocate for this voluntary tool that credit union members desire.
SB 1075 is currently with the state's Assembly Appropriations Committee for review, and we do not anticipate any changes. Until the gavel is down, I'm always concerned, which is why we'll be keeping a close eye on the finalization of the CFPB proposal. We'll also continue to advocate for our member credit unions as things evolve at the state and federal levels.
