Four Letters. Infinite Potential.

Branch Employees Play Essential Role in Keeping Your Overdraft Program Compliant

By John M. Floyd, Chairman & CEO

In 2010, regulators required financial institutions to offer account holders an option on whether or not they wanted overdraft coverage for electronic transactions (Regulation E). In the following two years, only 14.3 percent of customers at big banks had overdraft coverage, according to the Consumer Financial Protection Bureau’s (CFPB) findings from its study of overdraft policies at five of the largest U.S. banks. 

Since the results of this study were made public, consumer advocacy groups have sent “mystery shoppers” into large banks in several states to gauge the various overdraft program marketing techniques used by branch employees. In some instances, institution employees implied that account holders didn’t have a choice regarding overdraft coverage. Others used inconsistent, unclear and even incorrect details to explain their institution’s overdraft programs – regarding such details as opt-in requirements for coverage for ATM and debit card transactions, how overdraft fees are incurred and what alternative services were available to account holders.

As a result, these consumer groups are urging the CFPB to enact a series of tighter restrictions on overdraft programs, including: 

  • a ban on the reordering of transactions from high amount to low amount;
  • prohibition on all overdraft fees incurred as a result of an ATM withdrawal or a debit card purchase;
  • a ban on providing financial incentives to branch employees for the sale of overdraft products;
  • creation of a uniform standard for how institutions should verbally describe overdraft fees; and
  • required training on that verbal standard for branch employees.

Avoid increased regulatory scrutiny with compliant practices
As the CFPB continues to analyze the impact of overdraft solutions on consumers and determine the possibility of imposing additional regulatory action on overdraft programs early next year, financial institutions must consistently inform their account holders about how their program works, the costs involved and opt-in requirements for ATM and electronic transactions.

They should also be vigilant to notify account holders when an overdraft occurs and provide them with information on alternative financial products – such as lines of credit or savings transfers – that more appropriately fit the needs of excessive overdraft users and help them to avoid overdraft fees. At the end of the day, your account holders should be confident that they have all the information they need about their overdraft options to make informed decisions about their account management. By providing an up-to-date, fully communicated and reasonably priced overdraft program, you can strengthen your competitive advantage in the market with loyal, satisfied account holders.


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