Align Your Overdraft Strategy with Your Market

Expert advice and overdraft compliance resources alleviate uncertainty for consumers, banks and credit unions

Some large financial institutions have caused quite a stir by announcing that they are eliminating overdraft fees. And while this strategy initially sounds positive and makes a splash in the news, the effort fails to address what consumers face when important items aren’t paid.

These “no-fee” programs may pay some items, all are at risk of being returned; including critical family expenses, such as a mortgage or car payment. Some institutions charge low-balance fees if an account is not returned to positive within a certain time period of  several days. Other financial institutes charge a fee for payments above a certain dollar amount. In other words, the consequences of these alternative strategies can result in higher costs and inconveniences that outweigh the impact of a reasonable overdraft fee.

Problems that consumer face without overdraft protection

• Merchant fees
• Penalty fees
• Re-presentment of returned item
• Difficulty accessing credit
• Possibly higher interest rates being charged for future credit needs
• Losing access to use auto-pay for important bills
• Reliance on higher-priced access to cash, such as payday loans and car title loans

When your account holders experience an unexpected expense that depletes their account balance, knowing their transactions will be paid is greatly appreciated. We know that when all the details about how the service works are provided upfront, including the fees, it builds trust in your institution. The best practice and the only fully compliant approach is a fully disclosed overdraft solution. By providing your account holders a safety net they can rely on should they need it, you’ll eliminate uncertainty and give them financial peace of mind.

A responsible overdraft service with the proper disclosures is the best strategy

Evaluating your overdraft strategy is challenging. Ensuring that you offer a responsible service that benefits your account holders and your financial institution can be difficult. Your team will need to consider many questions, here is just a small sample of issues you will face:

• Is your fee structure priced appropriately?
• How does your fee compare to others in your market?
• What is the impact of making a change to your fees to consumers?
• What is the impact of changing your fees to your non-interest income?
• Is your program consumer-friendly and easy to understand?
• Do you have the appropriate limits in place for your account holders?
• How consistent is your staff when it comes to communicating program details?
• Do your policies and procedures adhere to the latest best practices?
• Which key metrics should you be monitoring?
• Do you have potential compliance or litigation risks that are going unchecked?

If you don’t have the right resources inhouse to set up, implement, and manage your overdraft program, JMFA has expert implementation consultants that work alongside your staff. This collaboration is the best way to achieve a customized solution based on your goals.

On-going training and advice will help your team gain insight and confidence to manage your overdraft program

With JMFA, you’re not alone. Our approach is to educate your front line team to be able to answer questions consumers have about using an overdraft program. We provide ongoing training at our JMFA Academy. And JMFA Advantage gives you the structure and insights to manage all of your compliant disclosures with confidence.

JMFA provides access to tools that help you manage your program more effectively, including compliance expertise, which offers our customers tremendous value. Moreover, this approach will complement your internal capabilities while providing additional support to surpass your goals.

Managing overdraft programs in a consistent way has lasting implications

How you choose to serve account holders who come up against liquidity needs says a lot about your overall service strategy. A transparent, equitable, and inclusive overdraft option offers value to both your account holders and your financial institution. It also goes a long way toward building trust, and establishing you as a partner in creating financial security for consumers in your market.