By Cheryl Lawson, EVP-Compliance Review
Fairness, Convenience and Compliance are the Benchmarks of Overdraft Protection
If your 2017 goals include increasing revenues and account holder satisfaction, a fully-disclosed overdraft protection plan may be the solution. A proven plan could fill not only both needs, but also provides fairness, convenience and compliance to the account holder and the financial institution.
Overdraft protection exists primarily to solve a common problem: a cash shortfall when a consumer faces a have or have-not purchase decision. By utilizing the service, consumers can answer a pressing situation in exchange for a manageable expense – one that’s often remedied within days – and your bank or credit union can increase income from a non-interest category. If you’re considering adding or adapting an overdraft protection service, let the attributes of fairness, convenience and compliance guide you to a win-win decision.
Fairness is rooted in value, and as it applies to overdraft protection, begins with how the service is initially presented.
Consumers should expect a fair program to be one that:
- is available to all account holders, and does not discriminate
- has uniform charges, with known limits, that do not fluctuate with the transaction amount
- is transparent at every touchpoint, from sign-up to opt-out, so that account holders can make a fully-informed decision about their level of participation
- includes consistent messaging throughout the process
- has your account holders’ best interests in mind, and excludes compensation-based incentives
- keeps account holders up-to-date from the inception of an overdraft through reimbursement
The convenience of overdraft protection applies to both the consumer and the financial institution. For the consumer, that can mean the ease of a standard transaction; the confidence of not needing additional arrangements or alternate, sometimes prohibitively-priced resources; and the discretion between only themselves and your bank or credit union.
Convenience for the institution can be:
- a turnkey system that doesn’t require an upfront investment or create new burdens on staff
- expenses contingent on income growth
- a technology platform independent of core systems for monitoring overdraft usage
- a source of account holder retention, loyalty and goodwill; something that uncovers new or unsatisfied needs that can expand the relationship to other services including borrowing or a line of credit
Given the nature of the industry, compliance is non-negotiable. For financial institutions that implement an internal overdraft protection program, compliance can become lax due to turnover or not keeping pace with industry changes.
Compliance is an ongoing process resulting from:
- a strong emphasis on training prior to launch and throughout the implementation phases
- a third-party provider who’s constantly learning from multi-client engagements and has external legal expertise that closely follows the industry
- systems that monitor constantly or on-demand, and that can readily provide answers to inquiries by examiners or authorities
Given the pace of everyday life and the growing prevalence of electronic banking – studies have shown debit cards represent the largest volume of non-cash payments – an effective overdraft protection service can benefit consumers and financial institutions alike. Consumers can more easily and discreetly resolve unforeseen situations, and you can both earn – and learn – more from account holders. For such a program to benefit both parties, consider how a program can meet the thresholds of consumer fairness, institutional convenience and industry compliance.