800-809-2307
Four Letters. Infinite Potential.

Disparate Impact Studies Especially Tough on Dynamic Matrix Systems

By Richard Miller

Executive Vice President

 

As regulations on financial products and services continue to rank among the top concerns for banks and credit unions, many are re-evaluating the viability of the products they offer to their account holders.

 

Overdraft matrix systems are complicated algorithms that have come under increased scrutiny insofar as their effect on protected classes. These programs are not transparent and are based on an abstract set of parameters or a complex matrix of eligibility requirements that are suspected of having a disparate impact on certain account holder segments.

 

When program eligibility favors one group of potential users over others, or restricts access to the service based upon abstract or subjective factors, compliance violations as well as damage to account holder relationships may occur.

 

Avoid risk of disparate impact with consistent overdraft program eligibility criteria

When it comes to on-going regulatory review of overdraft solutions, banks and credit unions can rest easy if their program is fully disclosed and provides specific eligibility requirements for all customers. For example, the use of unbiased criteria that pertain to everyone reduces the likelihood of criticism or negative consumer impact.

 

Also, consider that programs based on ad hoc decisions were common in the days when a bank officer or branch manager would review account overdrafts early every morning and decide whose check to pay and whose to deny, often based on subjective criteria. Today that practice could be equated to having a disparate impact on account holders who were denied the service.

 

With the availability of fully transparent overdraft solutions, you can avoid inconsistent decisions when it comes to overdraft program eligibility requirements. The key is to select a program provider that uses criteria that are objective and based on conditions that are common to all account holders. This will help to alleviate any compliance concerns regarding discrimination or disparate impact against any particular customer or member segment.

 

For best results, look for a compliance-tested, regulator-approved program

Financial institutions and outside vendors that have created their own eligibility criteria – based on an abstract set of parameters or a complex matrix of eligibility requirements – run the risk of negative examiner reaction and the possibility of adverse action by a class of consumers.

 

Did your bank or credit union turn off your overdraft program as a result of increased regulatory scrutiny? Or, could your current eligibility requirements put the institution at risk of being cited for discrimination and disparate impact by examiners?

 

In either case, your overdraft program should provide you with regulatory peace of mind and an easy-to-manage, reliable source of non-interest income. Likewise, more of your account holders will have the opportunity to access a compliant service that helps them maintain a healthy bottom line, as well. If you have any concerns about the program you have in place, consider a review of your program to ensure it is the best solution for your bank or credit union as well as the market you serve. 

 

Published on CB Insight  and CU Insight

 

View more related articles

Get a free assessment of your program

Learn more about JMFA OVERDRAFT PRIVILEGE®

 

100% 12 months 14 years 2020 2020 vision 40 years abusive abusiveness Academy account holder account holder retention account holder strategies account holder strategies; growth strategies; account holders accountability Achieve achievements Advancements Advice Agreement agreements alerts Americans analysis analytic Analytics announcement ask the expert Assistance ATMs Attendees attorneys attracting talent auto loans Automation B2B Balance Bank Bank of Pacific Banking banking services banks banks and credit unions batching Benefit best practices board governance board member board of directors Bob Layendecker bottom line branch equipment branch profitability brand loyalty branding Bryan Hanks budget budgets bundling business business culture business environment business practices business processes business strategies calendar card processing cardholders career advice Career Goal CARES Act case studies Case Study cash CDC CEO CEO onboarding certainty CFPB Challenges change charitable Checklist Cher Cheryl Lawson Choose Chris Karstens civil litigation claim clarity class action class-action lawsuit Classroom clients Cloud Cohron collections CommFirst Federal Credit Union commitment committed Communication communications communities community community banks Community Outreach Referral Program Competition Competitive Complaint Compliance compliance examinations compliance risks compliant condition conduct Conferences confidence connection Consistency Consistent consultant Consultation consultative consulting Consumer Consumer FInancial Protection Bureau consumer protection Consumer-focused Consumers Contactless Contactless cards Contingency Contingency Pricing contingency-based contingency-based fees Contract Contract Analysis Contract Negotiation contract negotiations contract negotiator Contract Optimizer Contract Renegotiations contract review contract staffing Contracts Convenience core processor contracts Cornerstone Credit Union League coronavirus corporate culture corporate governance cost costs Courtesy Pay COVID-19 CPE credits Credit Card credit card contracts credit card processing credit cards credit report Credit Union Credit Union Vendor Management credit unions crisis Crissandra Fry CSS culture customer customer experience customer service customers CUVM cyber security Damian Data Data Analytics database Deal debit debit card contracts debit cards Debt deceptive Decisions Demand Letters Department of Labor Deposit deposits Development Dick Miller digital digital wallet directors Disclosed disclosures discounts Discussion Dodd-Frank Act dollars donation Donna Sumrall Dynamic earnings Economic economic recovery economy Education efficiency studies election Email Emergencies Emergency employed employee employee retention employees EMV migration enchancing productivity enforce enforcement Engagement environment Errors evaluation Evolve examiners executive search Expectations Expense expense management expense reduction expenses Experience Experiences Expert expert negotiations expertise Experts expire Facilitators families FastTrack FDIC Federal Reserve Federal Reserve Board fee Feedback fees Financial Financial Institution financial institutions financial security financial services financial stability Financial Worry FinTech Fixed limits Fixed-limit Floyd's Forum Forrester Franklin First Federal Credit Union Free Analysis full disclosure Fully Fully Disclosed fully disclosed overdraft program fund funds future Gen Z Generating Income generating leads generation Generation Z Gift Gil Johnson global Goals governance government government agencies Greenwood Credit Union Grow growth guidance Gym Halloween Hammond Happiness health Heartland Tri-State Bank hiring HKW Holiday Holidays Houston Area Food Bank Houston Livestock Show and Rodeo HR HR policies Hubur human capital human resources Implementation implementing important Improved improved efficiencies improved results Inc. incentives income income enhancement Industry Innovate Innovative in-person Institution interest rates interests internet banking services interview strategies interview tips IT contracts Jackson Jai Jai Darden James Jamone Moore Jan Southern Jennifer Peoples Jennifer Simmons Jim Griffis Jimmy Nguyen JMFA JMFA Academy JMFA clients JMFA News JMFA Next Generation Overdraft Privilege JMFA team Joe Marsh John Cohron John M. Floyd John M. Floyd & Associates judicial justification Kelli Silvernale NCUA Kelly Flynn Kennedy knowledge law lawsuits Lawyer leaders leadership Learn Learning Legal legal risk legislative lending program Lesson leverage Limit Limits Literacy litigation litigators lives loans local Long Term Long-Term lost revenue Maggie Thompson Maintenance manage Managed management Mark Roe marketing marketplace Mary Soergel MasterCard matrices Matrix Matrix-based measurable measurable results meeting Member Members mergers Midwest Region Millennial Millennials mindset minimalism minimalist Mississippi Missouri mobile Mobile Banking mobile phone app Model monetary Money Morrison & Foerster Partner mortgages Most Valuable Provider NAFCU NCUA Needs negative balance Negative Settlement Negotiate Negotiating negotiating contracts negotiator Net Operating Analysis New Decade new revenue New Year New Year's Next Generation JMFA Overdraft Privilege NOA Non-Compliant non-disclosed non-interest Non-Interest Income North Carolina NSF NSF fees Obrea Poindexter OCC Officer Oliver Ireland onboarding Online operational Opportunities Opportunity Opt-In organization Organizational Health Outcomes outsourcing Overdraft overdraft compliance overdraft coverage overdraft fees overdraft practices Overdraft Privilege overdraft privilege program overdraft program Overdraft programs overdraft protection programs Overdraft Protection Service overdraft service overdraft services overdraft strategy overdrafts overdrawn Overspending pandemic Part 2 Partner partnership Paul McFarland paycheck emergency payday loans payment cards Payments Penalties Pennsylvania performance personnel physical distancing plan planning Plus4 Credit Union podcast Podcasts policies policies and procedures Policy POS Positive Swipe post-pandemic practice practices Press Release Privilege Manager CRM proactive procedure Procedures process process improvement Processing product profitability Productivity Products Professional Profitability Improvement Program Program Management programs prohibited project staffing Promotions Proposals Provider providers PwC Quality quantity Reactive reality Reassess Recruitment Services recruitment strategies reduce expenses refer referral Reg E regional director regulation Regulation E regulations regulators regulatory relationship Relationships reliability remote Renegotiate Renewal Reporting Reputation resolutions Resources Results Retail Retaining Employees Retention Retirement revenue revenue enhancement review Richard Miller risk risks ROI Ron Jennings Roy Roy Seifert Rules Ryan Armstrong safety Sales Salesforce Satisfaction savings Scrutiny secrets Security senate Senior Relationship Manager service service agreements service contracts service delivery Services Sessions settlement shareholders Sheila Bridges Shopping social distancing Social Events social media socially distanced Software Solution South Carolina specialization speed Spending staff staff development staff spotlight staff training staffing staffing gaps staffing studies staffing study stakeholders standard Statistics stimulus payments Strategic Planning Strategies Strategy streamline Stressful study succeed Success success factors Succession plan succession planning Support survey Susan Prell system talent team team members technology technology costs technology upgrades technology utilization temporary staff term terms Text Third-Party Expert third-party providers third-party vendor contracts third-party vendors threat three Tim Strandquist Time Tools Tools and Resources Tracking Trainer training transaction transactions Transparency Transparent Travel Treats trend trends Trey Martin Trust turnkey UDAAP uncertain times unemployment unfair updates Upgrades Value Variable Variable Limits Vendor vendor agreements vendor contract negotiations vendor contracts vendor management services vendor performance vendors video violation Virginia VISA volunteer Walker Washington Washington D.C. Washington Savings Bank Webinars weeks Westmoreland Community FCU Whitney & Company Wish list women work Workshops YouTube