Strengthen understanding of overdraft program benefits to fend off uncertainty
By JAI A. DARDEN, JMFA VP of Operations and Client Services
Leadership provided by outside community bank and credit union board members is critical in setting strategic direction and ensuring that established policies, compliance expectations, and state and federal laws and regulations are followed. In addition, board member support for the services you offer makes them important ambassadors in the community and can have a major impact on your institution’s long-term success.
On-going scrutiny of overdraft programs that utilize undisclosed procedures and high fees—as discussed in recent Congressional and Senate subcommittee hearings—can erode board confidence in your overdraft strategy. Plus, recent efforts by big banks to distance themselves from the criticism by eliminating overdraft coverage, can create a sense of urgency to follow the pack to make changes without considering the consequences. Left unchecked, these situations can lead to haphazard program adjustments that may hinder your overall ability to provide better service and value for account holders.
That’s why, when you offer a consumer-focused overdraft strategy, it is vital to educate both your board and internal teams about how it reinforces your service philosophy. This also reinforces the value a fully disclosed, consumer-centric program provides as an option for account holders who may need it from time to time.
Focus on what differentiates your program
Effective board discussions should focus on the key issues that distinguish your service from the “bad actors” that are in the news. When everyone is on the same page, your team will be in a much better position to critically evaluate and reinforce the benefits your program provides to account holders. For instance:
Stay focused on your mission
Seeing the headlines about banks and credit unions making the move to eliminate or lower their overdraft fees should not be a cause for concern. First, the institutions making the changes can more easily absorb the loss in fees. Plus, it’s likely they will find ways to recoup the revenue, one way or another.
Second, it’s important to consider that these changes represent more of a marketing tactic than anything else. Look at the fine print for institutions that have “reduced” or “eliminated” overdraft fees. In many instances, there are still transfer fees, minimum balance requirements, minimum deposit requirements and other confusing eligibility requirements associated with how negative-balance transactions will be handled. Worst of all, without access to overdraft protection services, an important transaction could be denied.
No overdraft program, what then?
Make sure board members and internal teams understand that overdraft protection is a service that consumers want, need and appreciate. This was confirmed by Morning Consult’s study for the American Bankers Association that found:
These figures reinforce the value that most consumers place on overdraft programs to avoid less desirable means of securing funds, such as:
Replace the rhetoric with confidence
A fully disclosed overdraft service with reasonable fees is not the deceptive, predatory product that some have portrayed it to be. Those institutions that have implemented significant changes to their program have done so because they:
The best way to instill confidence in your overdraft program is to make it so beyond scrutiny that no consumer, regulator, lawyer or competitor can find fault.
In some cases, changes may be necessary to provide a responsible and transparent service. Active discussions on why changes are being made, what value is being added for account holders or what efficiencies might be created for better program management support the idea of taking a holistic approach to this important service option. Your leadership team will appreciate it too.
When in doubt, seek professional advice
An expert in overdraft program management and compliance can provide the advice and guidance your institution’s leadership and board need to take the worry out of maintaining an ethically sound overdraft program.
They can also keep everyone up-to-date when it comes to regulatory changes, best practices and industry trends, so you’re aware of how your program is affected, and what, if anything, should be adjusted. Most importantly, fully informed board members will have the knowledge and confidence to advocate that your program is serving the needs of your account holders and your community.
JMFA provides community banks and credit unions comprehensive overdraft consulting with consumer-focused recommendations, data-driven intelligence and a 100% compliance guarantee to address your evolving needs. To learn more, contact your local representative or call us at 800-809-2307.