800-809-2307
Four Letters. Infinite Potential.

Is Your Overdraft Program Providing Optimal Results?

By John M. Floyd, Chairman and CEO

Changes in regulatory requirements over the past few years regarding financial services and products have had a significant impact on overdraft programs for all financial institutions. Now, most overdraft programs are outdated and obsolete. As regulators and consumer groups continue to focus on the expectations of transparency and full disclosure when it comes to consumer products, offering an overdraft program that is not up-to-date can have a strong impact on a financial institutions’s compliance, and ultimately, revenue.

Now is the time to re-evaluate the overall effectiveness of your overdraft program – from a compliance standpoint – as well as how it affects account holder service and performance.

Helping consumers maintain financial stability
As some consumers continue to experience difficult economic situations, many rely on their financial institution’s overdraft program to help them to make ends meet. According to a survey released by Bankrate.com, nearly three-quarters of Americans are living paycheck-to-paycheck, with little to no emergency savings. Fewer than one in four surveyed had enough of a cushion to cover unexpected medical costs or other needs. Going into the end-of-year holiday season can make this situation even more precarious for some as impulse buying and unexpected expenditures can lead to account shortfalls.

When having access to a reliable overdraft service translates into the ability to pay one’s mortgage or rent on time, or cover the cost of unforeseen expenses and essential services, it can make a tremendous difference in a person’s life. And while some may view the frequent tendency to overdraw a checking account as a lack of financial sophistication or even lack of judgment, it is important to remember that without safe, basic financial services, many consumers are forced to turn to more costly, often unregulated sources for cashing checks and paying their bills.

Full disclosure supports responsible use
Whether an individual only uses overdraft services occasionally or on a more regular basis to meet his or her near-term liquidity needs, providing all account holders with easy-to-understand information about how your overdraft program works, the costs associated with its use and the importance of returning an account to a positive balance is essential.
A fully-disclosed overdraft program clearly defines the rules by which an account holder may access an overdraft service and establishes a straightforward approach of responsible use. As a result, account holders have a reliable tool for maintaining control of their money.

Moreover, a consumer-focused, disclosed program offers overdraft limits that are set with the account holder’s full knowledge. When necessary, the limit can be adjusted, eliminated or re-instated, depending on the situation. As long as an account holder is in good standing, an overdraft will be paid to that established limit.
As a result, an informed consumer can avoid the extra expense of merchant fees and penalties for a returned check, not have to worry that ATM or debit card transactions might be declined and rest assured that important purchases will be paid in the event of a financial shortfall.

To further demonstrate your efforts to promote responsible program use, make sure you have the policies, procedures and communications materials in place to educate your account holders about the importance of returning their account to a positive balance within a specified timeframe. In addition to these formal policies, have a plan for counseling regular overdraft program users about how to avoid overdrafts, and provide advice on how to balance their account and establish a budget. When necessary, offer information on alternative strategies that might be better suited for their needs.

Transaction posting order matters
In the past several years, nearly all of the criticisms on overdraft programs – as well as reported fines and legal action – have focused on institutions that offer programs with dynamic overdraft limits or those that manipulate transaction processing order to increase overdraft fee income.

Because dynamic overdraft limits are set using a complicated, ever-changing criteria-based matrix, it is impossible for a consumer to know his or her limit from day to day. Or, for that matter whether or not an overdraft will be paid. Posting checks, ATM and debit card transactions in non-neutral order can cause financial hardship for members who may already be facing a difficult economic situation.

From a regulatory standpoint, these undisclosed procedures are discriminatory and will most likely result in increased scrutiny during a compliance exam or, in a worst-case scenario, result in fines and legal action.

Compliance doesn’t happen by accident
In today’s reality, transparent financial products and services are expected. To eliminate the risks of being out of compliance, make sure your overdraft program adheres to all consumer-focused regulations and industry standards for best practices, and provides the following:
• complete transparency regarding fees and program procedures;
• reasonable, communicated overdraft fees;
• clearly established overdraft limits;
• transaction clearing policies that avoid maximizing overdrafts and related fees created by the clearing order;
• the ability to easily monitor excessive usage; and
• communications materials that outline alternative financial products that more appropriately fit the needs of excessive overdraft users.

If you’re not sure that your current overdraft program is getting the best results for your financial institution and its account holders, it may be time to undergo a review of your program to identify any adjustments that need to be made to get it back on track.

Attention to the details results in a “win-win” for your financial institution and your account holders
As stringent regulatory expectations continue for the financial services industry, it is imperative to stay current with the processes and procedures required to maintain a fully compliant overdraft program. At the same time, by monitoring your program to ensure that it is meeting the needs of your account holders and providing your financial institution with the revenue necessary to meet your performance goals, you can increase its overall value.

In today’s environment, setting up an overdraft program that runs on auto-pilot, without any type of monitoring, can put your credit union or bank at risk for compliance issues, lost revenue and fewer satisfied members.

 

100% 12 months 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 analysis Analytics announcement Assistance ATMs Attendees attorneys attracting talent 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 branding Bryan Hanks budget bundling business business culture business environment business practices business processes business strategies career advice Career Goal case studies Case Study CEO CEO onboarding certainty CFPB Challenges change charitable Cher Cheryl Lawson Choose Chris Karstens claim clarity class action class-action lawsuit Classroom clients Cloud Cohron CommFirst Federal Credit Union commitment Communication communications communities community Community Outreach Referral Program Competition Competitive Complaint Compliance compliance examinations compliance risks compliant condition conduct Conferences Consistency Consistent consultant Consultation consulting Consumer Consumer FInancial Protection Bureau consumer protection Consumer-focused Consumers Contingency Contingency Pricing contingency-based fees Contract Contract Analysis Contract Negotiation contract negotiations Contract Optimizer Contract Renegotiations contract review contract staffing Contracts Convenience core processor contracts Cornerstone Credit Union League coronavirus corporate culture corporate governance costs Courtesy Pay COVID-19 CPE credits Credit Card credit card contracts credit cards credit report Credit Union credit unions Crissandra Fry CSS culture customer service cyber security Damian Data Data Analytics database Deal debit card contracts Debt deceptive Decisions Demand Letters Deposit Development Dick Miller digital directors Disclosed disclosures discounts Discussion Dodd-Frank Act donation Donna Sumrall Dynamic economy Education efficiency studies election Email Emergencies Emergency employee employee retention employees EMV migration enforce enforcement Engagement Errors evaluation Evolve executive search Expectations Expense expense management expense reduction expenses Experience Expert expert negotiations Experts Facilitators FastTrack FDIC Federal Reserve Federal Reserve Board fee Feedback fees Financial Financial Institution financial institutions financial services financial stability Financial Worry FinTech Fixed limits Floyd's Forum Free Analysis full disclosure Fully fully disclosed overdraft program funds Gen Z Generating Income generating leads generation Generation Z Gift Goals governance government Grow Gym Halloween Hammond Happiness health hiring HKW Holiday Holidays HR HR policies Hubur human capital human resources Implementation important Improved improved efficiencies improved results Inc. income income enhancement Industry Innovate Innovative Institution integrity interests 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 Joe Marsh John Cohron John M. Floyd John M. Floyd & Associates judicial justification Kelly Flynn Kennedy law lawsuits Lawyer leaders leadership Learn Learning Legal legislative lending program Lesson Limit Limits Literacy litigation litigators loans local Long Term Long-Term lost revenue Maggie Thompson Maintenance manage management Mark Roe marketing marketplace Matrix Matrix-based measurable measurable results Member Members Midwest Region Millennial Millennials Mississippi Missouri Mobile Banking monetary Money Most Valuable Provider NAFCU NCUA Negative Settlement Negotiate negotiating contracts negotiator Net Operating Analysis New Decade New Year New Year's Next Generation JMFA Overdraft Privilege NOA Non-Compliant Non-Interest Income NSF fees OCC Officer Oliver Ireland onboarding Online Opportunities Opportunity Opt-In 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 Overspending Partner Paul McFarland paycheck emergency payday loans Payments Pennsylvania performance personnel plan planning Plus4 Credit Union Policy POS Positive Swipe practice practices Press Release Privilege Manager CRM proactive procedure process process improvement Processing product profitability Productivity Products Professional Profitability Improvement Program Program Management programs prohibited project staffing Promotions Proposals Provider providers Quality Reactive reality Recruitment Services recruitment strategies refer referral Reg E regional director regulation Regulation E regulations regulators regulatory relationship Relationships Renegotiate Renewal Reporting Reputation resolutions Resources Results Retail Retaining Employees Retention Retirement revenue revenue enhancement review Richard Miller Right risk risks ROI Ron Jennings Roy Roy Seifert Rules Ryan Armstrong Sales Satisfaction savings Scrutiny secrets Security senate service service agreements service contracts service delivery Services Sessions settlement shareholders Sheila Bridges Shopping social distancing Social Events social media Software Solution Spending staff staff development staff spotlight staff training staffing staffing gaps staffing studies staffing study stakeholders standard Statistics Strategic Planning Strategies Strategy Stressful succeed Success success factors Succession plan succession planning Support survey Susan Prell talent team team members technology technology costs technology upgrades technology utilization temporary staff term Text Thing Third-Party Expert third-party providers threat three Tim Strandquist Time Tools Tracking Trainer training transaction Transparency Transparent Travel Treats trends Trey Martin Trust UDAAP unfair updates Upgrades Value Variable Vendor vendor agreements vendor contracts vendor performance vendors violation Walker Washington Webinars weeks Westmoreland Community FCU Whitney & Company Wish list women work Workshops