Introduction (5 minutes)

Team leaders should introduce themselves first and then call on others. Introductions should include your name, title, credit union, field of membership, and Project Zip Code numbers.
After the round of introductions, team leaders should hand over the folder to the legislative member or staff aide.

Overdraft and Non-Sufficient Fund Fees (7 minutes)

Senate Bill 1075 (Steven Bradford)
Location: Senate Appropriations Committee — April 3.
Coauthors: Monique Limón (joint author).

• The first bill we would like to discuss with you is our opposition to SB 1075, legislation that will significantly affect how credit union members manage their finances.
• SB 1075 imposes stringent requirements on how state-chartered credit unions serve their members that utilize overdraft protection services. Specifically, the bill:
  • Limits the number of courtesy overdraft and non-sufficient fund (NSF) transactions to three per month.
  • Mandates a five-day waiting period before a fee can be assessed. 
• Credit unions — as not-for-profit, member-owned cooperatives — were established over 100 years ago to provide financial services to those overlooked by traditional lenders.
  • Credit unions specialize in serving the underserved.
  • Nearly half of California’s credit unions are categorized as low-income designated, and many are Community Development Financial Institutions (CDFIs).
  • Overdraft protection services were introduced with this mission in mind, aiming to assist credit union members in accessing funds they lacked in their accounts.

• Members opt-in to utilize these services as a financial tool, often relying on them in crucial situations.
  • It’s essential to highlight that consumers must opt-in to courtesy overdraft service per the federal Electronic Funds Transfer Act and Regulation E (12 CFR 1005.17).
  • Consumers should have the opportunity to choose which financial services to utilize that best suit their needs.
  • SB 1075 limits a consumer’s access to a financial tool that continues to be desired among credit union members.

• SB 1075’s timing is premature.
  • The Consumer Financial Protection Bureau (CFPB) issued a proposed rule in January of 2024 regarding courtesy overdraft services that would provide two options for very large financial institutions: 1) use a breakeven standard to determine the amount of the fee; or 2) charge a benchmark fee. The benchmark fee could range from $3 – $14, and we are still awaiting the final dollar amount.
  • While we recognize that the CFPB’s proposal applies to institutions with assets over $10 billion, institutions not falling under this category may perceive the proposed rule as an industry standard, with some preemptively opting for a benchmark fee. This perceived standardization is driven by competitive forces and a desire to mitigate potential litigation risks.
  • It’s difficult to have a conversation about the policy in SB 1075 when there is such a robust discussion occurring federally that will have downward price pressure on the product, and thus the institution, that we will not know until the rule is finalized.
  • In addition to the proposed price ceiling rule, the CFPB issued guidance in 2022 cautioning financial institutions against “surprise overdraft fees” for authorize positive/settle negative (ASPN) transactions. California Attorney General Rob Bonta echoed a similar warning just weeks ago.
  • SB 1075 cannot be viewed in a vacuum; the legislature must stop and consider the potential ramifications to both the institution and the member.

• Limiting transactions will likely have unintended consequences on credit union members, particularly for members of moderate means.
  • When asked about courtesy overdraft services, credit union members view it as a means to manage their finances effectively. They prefer paying the overdraft fee to cover expenses such as gas/fuel or groceries as opposed to bouncing a rent check or missing other payments, which could incur larger fees.
  • A Morning Consult survey last year found that for the fourth consecutive year, 9 in 10 consumers found their bank’s overdraft protection services valuable, and nearly 8 in 10 consumers who have paid an overdraft fee in the past year were glad their bank covered their overdraft payment rather than returning or declining the payment. (Morning Consult on behalf of the American Bankers Association, “National Survey: U.S. Consumers Remain Happy with Their Bank, Competitive Financial Services Marketplace”; October 9, 2023).
  • Without adequate overdraft protection, or if it’s significantly restricted, failing to cover these transactions could result in severe consequences, potentially forcing members to resort to more expensive alternatives, such as predatory lenders.

• Additionally, the five-day period is notably lengthy, representing half a pay period for those who get paid every two weeks, or an entire pay period for those getting paid weekly. Charging the fee at the end of the five days is also problematic. There are potential conflicts with federal Regulation E on this point. Furthermore, it does not consider that there are losses associated with these transactions.
  • What would stop someone from opening a credit union account, running up transactions for two or three days, then closing the account and walking away from it?

• Restricting access to overdraft protection services could force credit unions into a difficult position.
  • If this bill advances, credit unions might face a difficult choice: accepting increased risk associated with unchecked consumer overdraft behaviors, or (more likely) being compelled to discontinue or scale back on consumer-friendly products such as free checking accounts.
  • Credit unions also enjoy a dual-charter system. It is possible that state-chartered credit unions wishing to continue to offer services like courtesy overdraft could simply change their charter to a federal charter, taking their assessment fees with them.
  • This restriction could result in reduced access to financial services and higher costs for basic necessities, disproportionately impacting financially vulnerable consumers. Such actions would contradict the objectives of promoting access and inclusion in financial services that many policymakers and regulators strive to achieve.  

• In the interest of protecting credit union members, credit unions have implemented positive, proactive measures that expand choices, strengthen transparency, and increase affordability for their members.
  • Across the industry, many credit unions have taken steps to: 1) reduce fees overall; 2) reduce fees on small transactions; 3) eliminate or reduce fees on transactions resulting in small negative balances; 4) eliminate transfer fees; 5) automate the fee waiver process; and/or or 6) cap the number of instances certain fees can be charged per day or another specified period.
  • Credit unions are focused on assisting members that frequently incur overdraft fees.
    • When a credit union becomes aware of a member’s frequent overdraft usage, the credit union may attempt to contact the member to address their financial situation and offer financial education and/or alternative credit products tailored to their unique needs.
    • This proactive approach exemplifies the pro-consumer nature of the credit union-member relationship, which distinguishes it within the financial services industry.

• Finally, and perhaps most importantly, this bill only impacts state-chartered credit unions, which is simply picking winners and losers. If a member wants to utilize overdraft services, the member can simply close the account and walk across the street and open an account at a Wall Street bank, which will not be impacted by this bill. SB 1075 creates a completely uneven playing field.

Our “Ask” of Legislators:

• For these reasons, we oppose Senate Bill 1075. We urge the legislature to allow the process at the Consumer Financial Protection Bureau to play out before continuing conversations on courtesy overdraft or non-sufficient fund transactions.

Financial Literacy (5 minutes)

The next topic we would like to discuss is financial literacy. Credit unions have proudly supported legislation over the years to improve the financial literacy of Californians. We strongly believe that students who receive financial education early on will be provided with the framework for a successful adulthood.

As of January 2024, more than 60% of Americans are living paycheck to paycheck. Even high wage earners are affected with one-third of those earning over $200,000 a year living paycheck to paycheck.

Currently, there are 25 states that guarantee a personal finance course for all high schoolers, but unfortunately California is not one of them.

There are two financial literacy bills that we support: Assembly Bill 1871 (Juan Alanis) and Assembly Bill 2927 (Kevin McCarty).

Assembly Bill 1871 (Juan Alanis)
Location: Assembly Appropriations Committee.
Coauthors: None.

• AB 1871 would include personal financial literacy in the adopted course of study for grades 7 – 12 in the social sciences area of study.
• The status quo is not working. For example, only about 25 percent of California high school students have access to a personal finance course elective.
• This gap in accessibility continues to impact disadvantaged students who could benefit the most from quality financial education.
• We support the goal of this bill to ensure students in grades 7 – 12 learn about personal financial literacy.

Assembly Bill 2927 (Kevin McCarty)
Location: Assembly Education Committee.
Co-authors: None.

• AB 2927 would require high school students to complete a one-semester course in personal finance as a graduation requirement, beginning with students graduating in the 2029-30 school year, including students attending charter schools.
• The bill would allow local educational agencies and charter schools to require a full-year course, instead of just one semester, in personal finance at their discretion.
• The bill would also require local educational agencies and charter schools to begin offering a personal finance course by the 2026-27 school year.
• By including a personal finance course as part of the high school graduation requirements, California students will be equipped with the necessary tools and resources to navigate future financial decisions, such as paying for college, applying for credit cards, purchasing their first car, renting or owning a home, and many more.

Personal Finance Ballot Initiative

• Aside from legislation, we also want to bring to your attention the California Personal Finance Ballot Initiative. In March, proponents for the ballot initiative submitted enough signatures to qualify for the November 2024 Statewide Ballot.
• The California Credit Union League endorsed the ballot initiative, which is nearly identical to Assembly Bill 2927 and would guarantee California high school students a stand-alone, one-semester personal finance course as a graduation requirement, starting with the graduating class of 2030.
• Notably, the initiative is also endorsed by:
  • Tony Thurmond, Superintendent of Public Instruction for California.
  • Malia Cohen, Controller for California.
  • Fiona Ma, Treasurer for California.
• We understand that if AB 2927 is passed and signed into law, there would not be a need for the ballot initiative.
• We are hopeful this bill will gain momentum with the help of positive traction from the ballot initiative. However, historically, financial literacy curriculum bills have not had success moving forward in the legislature.
• From the credit union perspective, we are happy with whatever moves the needle on this issue. We support both the bill and the ballot initiative.
• Credit unions have been supporting increased financial literacy efforts for years, and we are looking forward to 2024 being the year to finally get it done in California!

Credit Union Financial Literacy Programs

• We would also like to take a moment to share a little bit about how credit unions provide financial education to our members and communities.

Please share financial literacy examples specific to your credit union, or you can use the following example:

• With the assistance of the Richard Myles Johnson (RMJ) Foundation, the state foundation for credit unions in California, credit unions host “Bite of Reality” events across the state.
• This program presents students with a variety of financial situations and decisions, walking them through the everyday challenges that they’ll one day face in managing their finances. From purchasing transportation and housing to having children and handling credit card debt, students must budget properly or risk financial failure.
• Since the program launched in 2012, California credit unions have reached over 150,000 students.
• If there is any interest in hosting a financial literacy event in the district, we would be happy to partner with your team to provide this financial education to the community.

If the staff aide and/or legislative member are interested in hosting a financial literacy event, please make a note and get the best point of contact before leaving the meeting.

Our “Ask” of Legislators:

• Please support Assembly Bill 1871 and Assembly Bill 2927 to encourage state efforts to provide all California students with quality and accessible financial education.

Credit Union State Charter Modernization (3 minutes)

Assembly Bill 2062 (Tim Grayson)
Location: Assembly Banking and Finance Committee — April 15.
Co-authors: None.

• The final bill we would like to bring to your attention is the California Credit Union League’s sponsored bill, AB 2062, which is our state charter modernization bill.
• Credit unions, like banks, have a dual-charter system, meaning credit unions have the option of either being state-charted or federally chartered entities.
• Federally chartered credit unions are regulated by the National Credit Union Administration (NCUA). In California, state-chartered credit unions are regulated by the California Department of Financial Protection and Innovation (DFPI). Both federal and state governments periodically update their charters to stay competitive in their appeal and to create an even playing field in the dual-charter system.
• This bill makes necessary updates to the state charter and upholds the incentive for state-chartered credit unions to benefit from having a regulator with a local perspective.
• AB 2062 allows credit unions to keep up with the ever-changing landscape and best serve their members and communities across California.
• Most of these changes are nuanced, but they are important for credit unions. Some examples of the changes are:
  • Ensuring state-chartered credit unions can invest in credit union service organizations (CUSOs).
  • Codifying virtual member meetings into statute.
  • Streamlining the application for membership.
• The rest of the provisions are outlined in our sponsor letter. If you have any questions about the bill, please contact Robert Wilson.

Our “Ask” of Legislators:

• Please support AB 2062 to allow necessary updates to the credit union state charter.

Conclusion (1 minute)

Thank you very much for listening to the issues impacting credit unions and credit union members across the state. We have compiled a leave-behind document with some general information and figures on credit unions in California.

If you have any questions regarding credit unions in the state or the California Credit Union League’s bill positions, please contact Robert Wilson at (916) 325-1366 or Robertw@ccul.org.