| CALIFORNIA PUBLIC
INTEREST RESEARCH GROUP
-----Original Message-----
From: Jennette Gayer [mailto:jgayer@calpirg.org]
Sent: Tuesday, August 03, 2004 8:11 PM
To: Comments; regs.comments@ots.treas.gov
Subject: No, 2004-30
Jennifer J. Johnson
Secretary, Board of Governors
Of the Federal Reserve System
(12 CFR Part 230; Docket No. R-1197)
(Docket No. OP-1198)
and
Office of Comptroller of Currency (Docket No. 04-14)
Federal Deposit Insurance Corporation
Office of Thrift Supervision (No. 2004-30)
National Credit Union Administration
Re: Proposed Rule - Regulation DD
and Overdraft Protection Guidance
The California Public Interest Research Group (CALPIRG) is a
non-profit and non-partisan organization that stands up for California's
Consumers. For the past thirty years we have worked to make banking a
viable and affordable option for all Californians. We are writing to
express our opposition to the Federal Reserve Board's proposal to
regulate bounce loans, or so-called "bounce protection", under the Truth
in Savings Act (TISA).
Bounce loans should be regulated under the Truth in Lending Act (TILA).
The Board and the other federal banking regulators should also take
steps beyond the proposed guidance to halt the other abuses of bounce
loans, most particularly bank advertisements for bounce loans that
encourage consumers to use overdrafts as a credit source.
The Board (along with all of the federal banking regulators)
explicitly admits that bounce loans are credit, at the same time they
then fail to regulate them under the key federal law governing credit
disclosures. Bounce loans are an extraordinarily expensive credit
product. For example, a $100 overdraft will incur at least a $20 fee. If
the consumer pays the overdraft back in 30 days, the APR is 243%. If the
consumer pays the overdraft bank in 14 days, which is probably more
typical for a wage earner, the APR is 520%.
It is because of the expensive cost of bounce loans that consumers
need to have Annual Percentage Rate (APR) disclosures. Without them,
consumers have no way to compare the cost of bounce loans other similar
credit transactions, such as payday loans, pawnbroker loans, auto title
loans, overdraft lines of credit, and credit card cash advances. Of all
the high rate lenders, it is ironic that banks offering the most
expensive form of credit can avoid the need to disclose the single and
most critical piece of credit information. Contrary to the Board's
suggestion, consumers do find APR disclosures useful, with one study
finding over 80% of consumers aware of APRs and 60% finding TILA
disclosures helpful. More detailed comments submitted by the National
Consumer Law Center and others, which we endorse, contain suggestions
for how to disclose the APR in a meaningful manner.
As for the proposed guidance issued by the federal banking
regulators, it does not go far enough in protecting consumers from the
harms of bounce loans. The banking regulators must implement stronger
protections for consumers, and those protections must be legally
enforceable by both regulators and the consumers who are harmed by
bounce loans. There is no private right of action in TISA as there is in
TILA.
Stronger protections are necessary to prohibit banks from marketing
bounce loans as a credit source, essentially encouraging consumers to
write bad checks for their credit needs, and without a firm commitment
to cover them. These consumers, often low-income and vulnerable, are
likely to use bounce loans repeatedly and become trapped in a cycle of
debt. Conversely, banks often do not seek affirmative consumer assent
when imposing bounce loans, and consumers are charged these expensive
bounce fees without their consent or any prior warning. The banking
regulators must mandate that positive consumer opt-in is required for
any form of credit, including bounce loans.
Stronger protections are also needed to restrict bounce loans made
accessible through automated teller machines (ATMs) and debit card
transactions. There is simply no justification for allowing a consumer
to overdraw an account for a transaction that is on-line, real time, for
which the banks can confirm funds availability. The bank's purported
reasons why bounce loans benefit consumers - saving them from merchant
penalties, late charges, and embarrassment - are completely inapplicable
to ATM and many debit transactions.
Note that we are not opposed to overdraft programs in general. We are
only opposed to bounce loans that are exorbitantly expensive, that are
not accompanied by APR disclosures, that are imposed without affirmative
consumer consent, or that are advertised to consumers as an easy source
of credit.
Without TILA coverage and stronger consumer protections, bounce loans
will ultimately undermine years of efforts to bring unbanked consumers
into the financial mainstream. Previously, consumer advocates and
Treasury had agreed that bank accounts are safer and cheaper than going
to check cashers or keeping large amounts of cash at home. Given the
risk of incurring multiple overdrafts through unfair bounce loan
products, we can no longer make that claim with as much certainty- going
to a check casher might just be cheaper and safer than risking expensive
bounce loans fees. Ultimately, the irresponsible actions of banks in
offering bounce loans may lead to more unbanked consumers.
Thank you for your attention to this very important issue,
Jennette Gayer
Consumer Advocate, CALPIRG
Jennette Gayer
Consumer Advocate, CALPIRG
3435 Wilshire Blvd Suite 380
Los Angeles, CA 90010
213-251-3680 x333
213-251-3699 (fax)
jgayer@calpirg.org
www.calpirg.org |
