A TruMark Financial Credit Union branch in Northeast Philadelphia (Credit: Greater Northeast Philadelphia Chamber of Commerce)
A growing coalition of Pennsylvania banks and credit unions is sounding the alarm over House Bill 1553, fast-tracked legislation they argue would undermine essential consumer protections and destabilize financial services statewide.
The bill, which passed the House Commerce Committee by a party-line vote earlier this month, is framed by sponsors as a “consumer protection” measure.
But financial institutions say the proposed regulations would do the opposite—potentially eliminating overdraft protection, raising banking fees, and forcing low-income residents toward riskier financial options like payday loans - unintended consequences for an idea that sounds like a good idea on the surface but would have the adverse affect of what is designed to do in the long run.
"We are a consumer focused financial institution and we serve working class families all over the Philadelphia area," said Kelly Botti, President and CEO of TruMark Financial Credit Union. "What's missing here is conversation between financial institutions and legislators about our mutual constituents."
House Bill 1553 seeks to cap overdraft and nonsufficient funds (NSF) fees and limit how many times they can be charged per day. The legislation would prohibit banks from imposing more than three NSF fees in a single day, regardless of how many overdraft transactions occur, and impose strict notification rules before fees are assessed.
Critics say these rules would leave state-chartered financial institutions unable to recoup the operational costs of offering overdraft protection services, thereby forcing them to raise other fees or eliminate the service altogether.
Overdraft protection allows a transaction—such as a rent payment or utility bill—to go through even if a customer’s account lacks sufficient funds. In return, banks charge a fee and the customer repays the amount later. Without this option, consumers face bounced checks, declined transactions, and damage to their credit or rental history.
"When you impose a cap that actually incentives more usage on overdraft programs," Botti said. "So if the goal is to move people away from overdraft as a means to bridging their financial gaps and helping people to have better financial futures where they can have robust savings to help them make their ends meet, this isn't necessarily the way to do it. It's especially not the way to do it for the health and choice of community financial institutions because it disproportionally affects smaller financial institutions who may not have the ability to make that fee adjustment overnight."
A joint statement released earlier this month by the Pennsylvania Bankers Association, the Pennsylvania Association of Community Bankers, and CrossState Credit Union Association detailed a series of objections to H.B. 1553.
"Why are community banks being punched in the nose," asked Pennsylvania Association of Community Bankers (PACB) President and CEO Kevin Shivers in a statement. "Why are lawmakers considering legislation that punishes the good actors, under the guise of protecting consumers? At a time when the pace of bank consolidation is rising, why would they choose to impose new costs that could hasten the disappearance of these local, community-based institutions that play such a vital role in communities across Pennsylvania?"
The belief is this legislation would impose additional restrictions on community banks and make it more difficult to recoup costs to administer protection services, forcing some banks to recover costs by curbing or eliminating other services, including free checking, or drop overdraft protections completely, sending shockwaves through the economy, Shivers explained.
"In addition, House Bill 1553 could result in Pennsylvania chartered banks moving to a federal charter to avoid what would be a costly state mandate," he said. "That could jeopardize the state Department of Banking and Securities and its ability to protect Pennsylvania consumers."
The bill’s rapid movement through the House has also drawn criticism. A co-sponsorship memo was introduced on June 2, the bill was introduced and approved by committee just nine days later, and a full House vote could happen as early as this week.
Banking groups argue that the speed and lack of deliberation suggest political maneuvering rather than thoughtful policymaking.
Surveys cited by the American Bankers Association show that a majority of consumers support having overdraft protection as an option and value the choice to opt into such services. Under current federal regulations, consumers already must opt in to overdraft protection and can opt out at any time.
"We're all looking at it because we are challenged by our peers and there is market pressure that requires us to adjust and respond to what's happening with fee reductions from larger financial institutions and also to address some digital offerings that they provide that allows consumers to manage money in a more bespoke way," Botti said. "But when you serve low-income and working-class families, overdraft is a mechanism of how they manage money. It's a tool in their toolbox. Often times those families are banking with more localized institutions.
"We want to be sure we can offer those products and services in a complete package - free checking, plus overdraft features, plus ATM access, plus branch access - you're looking at it from a whole perspective. When you take away or force regulation in one area it really just shifts where the funds end up getting charged to a consumer. There are costs to doing business and if we're not available and open to our consumers then we are absolutely not beneficial to them."
Nationally, the overdraft debate has intensified in recent years. The Consumer Financial Protection Bureau has investigated what it calls “junk fees,” including overdraft and NSF charges. However, in a major development this year, Congress reversed a proposed regulation aimed at curbing overdraft fees, signaling bipartisan acknowledgment of their utility for many consumers.
Still, consumer advocacy groups argue that low-income individuals are disproportionately impacted by such fees and that reforms are necessary to limit abusive practices. H.B. 1553 supporters in the Pennsylvania House say their bill is modeled on those principles of reform.
The Pennsylvania House is expected to consider final passage of H.B. 1553 early this week. If it passes, the measure would move to the Senate, where financial sector lobbying is expected to intensify.
Efforts by Philly Daily to contact multiple members of the House Commerce Committee from the Philadelphia area were unsuccessful.
In the meantime, banking and credit union leaders are urging lawmakers to reconsider.
“Existing laws already protect account holders, as they have the choice to opt in or out of overdraft protection. PACB members openly disclose fees and terms to depositors. Their customers do not have to pay fees they did not agree to,” Shivers said.
For more information on the bill’s status and details, visit the Pennsylvania General Assembly website.
