February 10, 2014

Hoffman: Small CUs affected most by Fed policy change

Feb. 11, 2014 – NAFCU Regulatory Affairs Counsel PJ Hoffman expressed the association's concern that a revision of the Federal Reserve Policy on Payment System Risk might disproportionately affect credit unions and lead to daylight overdrafts, in a letter to the Federal Reserve Board.

Hoffman notes that the changes to the PSR policy would cause a reduced average of account balances during the day for institutions that participate in the Fed's same-day automated clearing house debit and commercial check service. Ninety-seven percent of those institutions have assets under $10 billion, which Hoffman said could be problematic.

"NAFCU is concerned that these proposed changes disproportionally affect credit unions and other small banking organizations between $500 million and $10 billion and could ultimately lead to daylight overdrafts being incurred by some credit unions with an overall increase in fees for a number of credit unions," Hoffman wrote. "If the changes are implemented as proposed, some credit unions will need to hold higher balances with the Federal Reserve overnight, arrange early morning funding, or incur daylight overdrafts to fund the earlier posting of check transactions."

Hoffman noted similar concerns about a Fed proposal to revise Regulation J on check collections.

Hoffman added that NAFCU generally supports the Fed's progress in updating rules that have not been updated since 2002 and said credit unions can benefit from better alignment of settlements for checks with actual deposit and presentment times. He also suggested the proposed changes have an implementation period of longer than six months, in order to allow small institutions like credit unions enough time to prepare.