Gov’t to Crack Down on Credit Union Overdraft Fees

Government credit unions are still offering overdraft privilege products to their account holders even while the President and members of Congress are attempting to regulate overdraft loans.

USA Today reports that the White House Federal Credit Union (WHFCU), a financial institution that holds accounts for White House employees and their families, automatically signs up its consumers for Overdraft Privilege, a credit union overdraft protection service that allows the financial institution to pay check and debit card purchases when consumers do not have enough funds in their accounts to cover the cost of these transactions. In exchange for performing this service, the credit union then charges a $25 overdraft fee each time.

According to Christopher Clark, business development manager for WHFCU, he and the financial institution view the Overdraft Privilege coverage as a safety net, stating “We look at it as a tool just to assist (customers) as needed.” Reports also state that Treasury Department Federal Credit Union and the United States Senate Federal Credit Union are among 13 government-based credit unions that use this high-cost form of credit even if an account holder has not asked to be signed up for overdraft protection.

Credit Union Overdraft Protection Practices

Government credit unions are not the only financial institutions being criticized for their use of overdraft fees. Various credit unions across the nation are under investigation for overdraft charges and other practices related to overdraft protection. These include financial institutions such as State Employees Credit Union of Maryland, Linthicum, MD; State Employees Federal Credit Union, Albany, NY; Wescom Central Credit Union, Pasadena, CA; San Antonio Federal Credit Union, San Antonio, TX; and Tower Federal Credit Union, Laurel, MD. These five credit unions are part of the top 50 wealthiest credit unions in the United States and include government and consumer-based credit unions.

“It’s disappointing if the most influential Washington, D.C. credit unions are using practices designed by consultants to extract money out of their members. Government credit unions should serve as a model for what’s right rather than a poster child for what’s wrong,” states Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group.

Many agree with Mierzwinski’s sentiment that government credit unions should be leading the way in terms of practices within the financial industry, not participating in a popular practice meant to exploit account holders. Although credit unions brand themselves as fee-friendly bank alternatives, the use of overdraft fees by these financial institutions has led some to question whether the goal of revenue has led credit unions to become just like any other bank.

The Federal Reserve, the central banking system for the United States, states that it expects to release a rule regarding banks and credit unions overdraft practices; however, this government agency has not indicated whether or not this rule will require banks, credit unions, and other financial institutions to acquire consumer permission in order to implement overdraft protections services, or if the Federal Reserve will simply allow these groups to continue to enroll account holders into this fee-based services automatically.

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