Four Letters. Infinite Potential.

Updated Overdraft Strategy Boosts Historic Credit Union’s Success and Member Focus

The mission of First Community Credit Union hasn’t wavered since it was established as the Fairbanks Morse Employees Credit Union during the Great Depression by 16 Fairbanks-Morse Corporation employees who chipped in $5 each. Today, First Community serves the financial needs of anyone who lives or works in the counties surrounding Beloit, Janesville and Monroe, WI, and Rockford IL.

First Community continues to focus on providing services that meet member needs, while thriving in a competitive marketplace. To help those who have experienced occasional overdrafts, credit union leadership incorporated an overdraft module from its core provider. Initially, this strategy proved somewhat successful. But over time, the program failed to sustain much lift from efforts to communicate it to members and the fee revenue became stagnant – even after it was extended to debit card usage.

Less than stellar results lead to quest for improved strategy
After a few years of maintaining this strategy, First Community President Jack Gill had a conversation with JMFA Regional Director Susan Prell that set the credit union’s overdraft results on an upward trajectory. At that point, the credit union was growing rapidly and Gill wanted to make sure they offered the best available overdraft option.

“Susan came in and we talked about several issues we were having with our current program,” Gill explained. “She gathered some program data and came back with projections on how JMFA could improve our results.” After the initial conversations with Susan and her team, Gill knew there was no need to evaluate other providers.

Once implementation of JMFA OVERDRAFT PRIVILEGE® was underway, Gill began to see the benefits of his decision. “JMFA’s consultants offered a great deal of advice and support, something our core didn’t provide when we implemented their module,” he said. Before long, the credit union began to experience positive results in a number of areas that have been key to the program’s success. 

Reliable technology plays an important role in efficiency and results
The automation provided by JMFA OVERDRAFT PRIVILEGE® has been a real time saver for employees, according to Gill. “Important functions – such as changing monthly overdraft limits when deposit levels increase would be very time-consuming without it,” he said. “And the staff member who reviews accounts finds it extremely useful as overdrafts easily go into a que, which helps simplify tracking and collections. I definitely can’t imagine maintaining an overdraft program successfully without such automation.”

Gill also appreciated that JMFA configured the software upload from the core server, which made it less expensive to switch to the new platform. “Plus, JMFA’s Privilege Manager CRM® software was core compatible and easy to maintain,” he added.

Proven regulatory expertise and compliance guarantee = peace of mind
Overdraft income has been a big source of revenue for First Community and regulatory uncertainty is a big concern for Gill. “Having a fully compliant program and the assurance that JMFA would go to bat for us on any regulatory questions has made me feel much more confident,” he said.

And while Gill thinks it unlikely that the Consumer Financial Protection Bureau (CFPB) will release any significant rules regarding overdraft programs in the near future, avoiding the threat from potential legal scrutiny is equally important to him. “Class action lawsuits being filed against institutions that don’t disclose information properly continue to be concerning,” he said. “JMFA’s compliance guarantee is important to me from that standpoint as well. Plus, we want to do what is fair for our members. They expect full disclosure and the opportunity to choose whether or not to use our programs – with no surprises.”

Consistent communication keeps the program top of mind
Initially, Gill wasn’t totally convinced that the materials JMFA provided would generate enough member interest to get the revenue results the consultants projected. But in the end, he realized that the messages worked just as JMFA predicted and results have exceeded the initial expectations. “I was pleasantly surprised by the effectiveness of JMFA’s communications resources and recommendations,” he said.

Gill also considers the information provided in quarterly mailings valuable. “These reminders educate members about the free resources we provide for checking their account balance before they decide whether or not to make a purchase,” he continued.

Employee buy-in is an essential part of program success
According to Gill, JMFA’s approach to employee education has been a huge benefit. “Initially, not all employees believed in the value of the overdraft program and some had a tendency not to offer it to members,” he said.

But Gill sees it differently. “I believe we should base our product decisions on what’s in our members’ best interests, not our own,” he said. “People are likely going to use an overdraft service. Why not bring them here and at least give them a better deal on it. However, I don’t think all employees felt the same way.”

Gill credits JMFA’s consultants for doing a great job of dampening some of those negative feelings and creating more of a neutral situation during the initial training. “Just as with any other product or service, it’s our job to disclose what it is, tell members how to use it, how much it costs and then it’s up to the them to decide whether or not it is right for their situation.” 

Measurable results punctuate program’s value
Since implementing JMFA OVERDRAFT PRIVILEGE®, First Community has experienced significant program improvements by following JMFA’s recommendations and tracking program usage. “The tracking capabilities have helped us to identify ratios in certain areas where improvements can be made,” explained Gill.

Quarterly calls with the credit union’s relationship manager also give staff the opportunity to address these issues and make the changes necessary to keep the program on track in the following areas: 

• Increased revenue – Initial revenue projections indicated the credit union could earn $260,000 in overdraft fees. Actually, year-to-date overdraft revenue is 76 percent above base and First Community is on target to reach 93 percent by the contract’s end.

• Reg E Penetration – After implementing JMFA’s key recommendations, First Community saw its Reg E penetration increase from 15 percent to 40 percent.

• Reduced waivers – Information provided by JMFA’s Privilege Manager CRM® software reports has helped the credit union reduce the number of waived fees by half. “We had never tracked waivers before,” commented Gill. “Now we understand this is a huge area for potential revenue leakage.” 

Program structure is key to overall success
In the beginning, Gill thought there must be some secret formula that JMFA used to get such great results. In reality, he has realized it is much simpler than that. “Results come through the structure and discipline of the program, along with JMFA’s approach,” he said.

“There are a number of things that are incorporated into JMFA OVERDRAFT PRIVILEGE® that lead to the program’s results – the ease of program implementation, the change of philosophy for employees who don’t understand the value of the program, compliance peace of mind, along with JMFA’s best practices. In my opinion, JMFA is synonymous with overdraft management,” Gill said. “The company’s track record for getting results – along with its compliance expertise – made JMFA the perfect provider for us.”

Competitive market creates need for strategic decision making
As industry competition has increased, so has the need for credit unions to consider multiple sources for revenue generation in order to stay in business. “If institutions don’t have an overdraft program, they have their heads in the sand,” Gill said.

“Your account holders are using some type of service when they need funds – whether it’s with another financial institution’s overdraft program, a short-term loan, payday lender or something else,” he continued. “A disclosed overdraft program provides a consistent revenue source for an institution, as well as a kind of insurance policy for account holders when they make a mistake in their checkbook. If they don’t use it, they won’t ever be charged. But if they do need it, it’s there. Used correctly, it makes your job and your account holders’ lives a lot easier.”

About JMFA

JMFA is one of the most trusted names in the industry helping community banks and credit unions improve their performance and profitability. Whether it’s identifying new revenue opportunities, reducing net operating costs, serving account holders better, delivering a 100% compliant overdraft program, or finding the perfect personnel fit―JMFA has the right solutions to help their clients not only meet, but exceed, their goals. We are proud to be a preferred provider among many industry groups.

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