800-809-2307
Four Letters. Infinite Potential.

When it comes to overdraft solutions, full disclosure is the preferred regulatory strategy

By Cheryl Lawson, Executive Vice President-Compliance Review

Despite the fact that regulators continue to delay a ruling on overdraft services, consumers continue to need help with managing their finances from time to time and financial institutions are struggling to find reliable sources of revenue.

Under these circumstances, it is more important than ever to provide account holders with a reasonably priced, easily understood and non-discriminatory solution that helps them to maintain their financial well-being. When this solution also provides your bank or credit union with a reliable revenue stream and regulatory peace of mind, everybody wins.

Over the past 10 years there have been several regulations or proposed guidance on overdraft solutions, but yet there has been no firm directive from regulatory bodies that disallow overdraft programs. So the question becomes, how to implement an effective solution that:

     • is sensitive to regulatory comment or perspective;
     • satisfies the needs of your account holders that may experience a temporary financial shortfall; and,
     • helps your bank or credit union achieve its revenue goals.

Regulatory compliance is essential for a value-added overdraft solution
Simply stated, regulators expect financial institutions to be transparent. A fully-disclosed overdraft program clearly defines the rules by which an account holder may access the service. This straightforward approach of responsible use provides your account holders with the information they need to make a more informed decision on whether or not to use a product, based on their individual circumstances.

This allows your financial institution to demonstrate to examiners that the program is in compliance with all regulations and guidance regarding how the program works, how limits are set, how fees are assessed, what information is included in disclosures to account holders and much more.

Provide better services that are fair to all
With the myriad financial products and services available today, an informed consumer is the wisest consumer in the marketplace. A fully-disclosed overdraft program is a valuable tool that can strengthen the account holder relationship by:

     • informing them ahead of time what the service is going to do for them;
     • providing access to overdraft coverage whenever they need it;
     • furnishing information using the service and how to bring their account current; and,
     • communicating all costs plus alternatives that may be more appropriate.

If an account holder uses the service in a way that it isn’t intended, you can provide guidance on his or her use. When account holders know their financial institution trusts them to bring their account current it strengthens the bond and relationship—improving account holder loyalty.

Effectively address non-interest income
With the recent low interest rate environment and a lack of new revenue-generating products and services, financial institutions are more challenged to increase income. A disclosed overdraft solution provides more consumers with the opportunity to use the service, thus there is more of an opportunity for revenue generation. And let’s face it, at some point in time many consumers make a mistake on their account, miscalculate when a deposit will clear or experience an unexpected financial need. By using the overdraft program occasionally – not all the time – that large universe of accounts represents potential revenue.

On the other hand, when a program is undisclosed, the only people who know about it are the ones who overdraw their account. And since that is a finite audience, at some point you max out the ability of that group to provide additional income to the institution. Add to that the possibility that, over time, some of those users could become charge-offs, move or leave your financial institution altogether.

The alternatives come with risks

While much has been written lately about matrix-based overdraft solutions that offer dynamic limits, there are compliance concerns with these programs. The amount of privilege or negative balance amount fluctuates so the account holder doesn’t know from one day to the next whether the limit is $1,000 or $100. What’s more, the formula is complicated creating difficulty for staff to explain the details of the limit to the account holder let alone explain why the limit is what it is. This goes against the grain of regulatory expectations of program transparency.

And while a program with dynamic limits may offer more control for the financial institution, it is important to consider that is also discriminatory against those account holders who don’t get the privilege because of low account balances.

Don’t go it alone when it comes to compliance expertise
Maintaining comfort with and compliance around the regulations associated with overdraft programs is a huge responsibility. If you don’t have a high level of expertise within your organization, it is important to partner with a provider that offers a fully-compliant overdraft solution as well as regulatory knowledge. Then, in the event of regulatory rulings, you can rest assured that you will be informed of any changes and receive the resources necessary to update your processes, forms, account holder communications materials, or terms or conditions.

What are you waiting for?
As we all know, the regulatory process is slow.  It is approaching five years since regulators started looking at a possible ruling on overdraft programs. During that time, many financial institutions have hesitated to implement a program because of uncertainty surrounding what ruling might be released. However, in the event there isn’t an overdraft ruling until 2017, what are you doing for your account holders that need a financial safety net for the next year? What are you doing to generate income for your bank or credit union?

At this point, if you don’t offer a fully-compliant overdraft solution your greatest risk is losing accounts to other financial institutions that do offer this valuable service. They are the ones that can respond to account holder needs, and have the opportunity to earn the revenue necessary to fund new technology-based programs and other highly sought after services.



Also featured on CB Insight and CU Insight

 

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