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Safe Harbor in a Storm

By Cheryl Lawson, EVP-Compliance Review

Where do your account holders turn in a financial emergency?

 

According to a recent CareerBuilder survey, 75 percent of Americans live paycheck to paycheck to make ends meet. While minimum wage workers are affected the most (66 percent), 23 percent of workers making $50,000 to $99,000 struggle financially each month and nearly a tenth of earners making $100,000 or more feel the financial pinch from time to time.

Whether this dilemma is caused by a failure to observe a budget, economic conditions or unforeseen expenses, many consumers face occasional financial challenges. In fact, an error in calculating a checking account balance or a late deposit can result in consumer purchases being denied and having to rely on expensive – often unregulated– sources for cashing a check and paying bills. What’s more, it can lead to difficult situations with merchants that people rely on for everyday needs.

Account holder-centric solutions meet their needs
Your bank or credit union can play an important role in helping account holders maintain financial stability by providing a fully transparent overdraft solution that covers occasional financial shortfalls. The key is to make sure that program practices are in line with all regulatory and consumer protection expectations, such as:

  • simple, easy-to-understand processes;
  • full disclosure on overdraft limits
  • reasonable fees; and
  • transaction clearing procedures that don’t maximize revenues.
 
When consumers experience a financial shortfall, they appreciate knowing that their financial institution will help them get through an urgent need to purchase necessary products and services. And when they are knowledgeable about what the service will cost and how it works, they are able to make informed decisions about taking care of their short-term needs.

Providing your account holders with access to a compliant overdraft program that helps them to manage their finances can set your institution apart from the competition and leads to long-term account holder loyalty that doesn’t always come with other services.

Account holders appreciate help in navigating financial rough waters
In a recent conversation with a client, I learned about an account holder who had experienced a reduction in work hours due to an industry slowdown. And while this individual was able to find a new job relatively quickly, there was a span of time between jobs and paychecks where he was without a financial cushion to help him pay his routine expenses.

Thanks to the institution’s fully disclosed overdraft program, this individual could cover financial responsibilities with peace of mind and avoid damage to his credit. And as soon as his paycheck arrived, he was able to re-establish a positive balance in his account.

Interestingly, my client noted that without the safety net provided by their overdraft protection program, account holders facing similar situations could experience very different results. In fact, he said that he had never heard an account holder say, "You paid these checks for me and charged me a fee for each one. I wish you would have returned them."

Proper tools and established directions clear the way to successful results
By providing a compliant overdraft service that includes transparent communication and account holder education regarding eligibility, appropriate program usage and repayment policies, you can strengthen account holder relationships and help them to sail smoothly through occasionally rough financial waters. At the same time, you can successfully navigate regulatory expectations while earning the non-interest income you need to reach your performance goals.


 

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