Four Letters. Infinite Potential.

While Economy Improves, Many Consumers Still Need A Financial Safety Net

If your bank or credit union isn't providing overdraft services, consumers will likely look elsewhere

By John M. Floyd, Chairman and CEO

Encouraged by improvements in the housing market, falling energy prices and a low inflation rate, economists are becoming more optimistic that 2014 will be a breakout year. But as many consumers remain concerned about unemployment and financial issues – ranging from meeting everyday financial obligations to paying off additional expenses due to holiday purchases and covering upcoming income tax responsibilities – personal economic issues can weigh heavily on the mind and the pocketbook.

According to a survey 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 expenses or other emergencies. To highlight the effect this has on personal finances, the Center for Financial Services Innovation found that an estimated 15 million people access small-dollar credit products to meet their financial needs every year.

Whether as a result of unplanned expenses or an error in reconciling a checkbook, financial shortfalls can happen to anyone. Without a financial safety net, many consumers often experience difficulty paying their bills and face costly merchant check return fees when their account has insufficient funds to cover a check. By providing a user-friendly overdraft program, your credit union or bank can help consumers avoid these difficult situations.

A fully disclosed overdraft program reassures account holders that their items will be covered and their ATM and/or debit transactions won’t be denied. When this translates into the ability to pay one’s mortgage or rent on time, or cover the cost of medical needs and other essentials, it can make a tremendous difference in an account holder’s life. Plus, access to overdraft services can help consumers avoid more costly, often unregulated, alternative financial services.

Taking a closer look at fully disclosed overdraft programs
As an advocate of completely transparent, fully disclosed overdraft programs, JMFA – in partnership with Washington D.C.-based Morrison Foerster LLP – gathered information about overdraft program processes and procedures used by 50 financial institutions across the country. The goal was to get a detailed look at the impact disclosed programs have on consumers.

According to the study results, there appear to be two distinct patterns of overdraft use: consumers who use the program occasionally – and in many cases inadvertently (15 percent) – and those who regularly rely on overdrafts to meet their near-term liquidity needs (85 percent).

Understanding patterns of overdraft usage
Occasional users generally do not plan to incur overdrafts. Many do so because they have not kept track of their account balances or have made mistakes reconciling their account. Or, they intentionally overdraw their account in order to make payments that they consider important and that they expect to cover with a deposit in the near future.

Because they do not incur frequent overdrafts, occasional users are less likely to understand their financial institution’s overdraft practices. This includes individuals who have incurred significant overdraft fees for debit card and ATM transactions because they were relying on their financial institution to reject these transactions if they would result in an overdraft. On the other hand, consumers who regularly overdraw their accounts do not appear to have a liquidity cushion and use overdrafts to help them cover their expenses on a regular basis.

Whether a consumer only uses overdraft services occasionally or on a more regular basis to meet his or her near-term liquidity needs, it is essential that financial institutions provide easy-to-understand information about how their overdraft program works. Account holders should know from the outset the costs associated with using the service and the importance of returning an account to a positive balance. This, along with counseling regarding alternative strategies and services that might be better suited for a consumer’s individual needs, will encourage responsible program use and demonstrates a commitment to maintaining full compliance with all regulatory expectations.

Informed consumers can rest assured that purchases will be paid
With established limits, a fully disclosed overdraft program clearly defines the rules for how an account holder may access the service. Moreover, a consumer-focused, disclosed program provides a thorough explanation of the terms and processes used in its implementation and offers overdraft limits that are set with the consumer’s full knowledge.

When necessary, this limit can be adjusted, eliminated or re-instated, depending on the situation. As long as the consumer is in good standing, an overdraft will be paid to that established limit. As a result, informed account holders can avoid the extra expense of merchant fees and penalties for a returned check, they won’t worry that an ATM or debit card transaction might be declined, and they can rest assured that important purchases will be paid in the event of a financial shortfall.

Changing regulations necessitate program changes
With the implementation of new consumer protection regulations and restrictions on charging fees for overdrafts resulting from ATM withdrawals and one-time debit card transactions, many existing overdraft programs are outdated or obsolete. To provide your account holders with the most up-to-date overdraft solution, your overdraft program should include the following:

• updated communications materials and recommendations for helping account holders understand the benefits of a fully communicated overdraft program and how to use it responsibly;
• improved analytics and more robust data monitoring/analysis to support better program management, as well as enhanced reporting and tracking capabilities to measure results; and
• expanded recommendations for how to gauge on-going program performance and implement any necessary improvements.

In today’s highly regulated environment, financial institutions must strike a balance of compliance and good account holder service to thrive. With the proper policies and procedures in place to educate overdraft users about the importance of responsible use, your institution can alleviate compliance concerns and better serve your customers.

Plus, by providing your account holders with an up-to-date, fully communicated and reasonably priced overdraft program, you can strengthen your position as their preferred provider of financial services and increase your competitive advantage in the market.

As seen in:
League of Southeastern Credit Union's Signal- Spring 2014
MDDCCUA, Daily Scoop- February 2014
CU Insight Headline News- February 2014

CB Insight Headline News- February 2014



100% 12 months 14 years 20 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 caring 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 family FastTrack FDIC Federal Reserve Federal Reserve Board fee Feedback fees Field Consultant Financial Financial Institution financial institutions financial integrity financial security financial services financial stability Financial Worry FinTech fit 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 Jessica Pickett 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 management experience 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 problem-solving 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 retail operations 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 strategic vision Strategies Strategy streamline Stressful study succeed Success success factors successful 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 well-rounded Westmoreland Community FCU Whitney & Company Wish list women work work ethic Workshops YouTube