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How to Respond to a Regulatory Hiatus




Hint: Don’t be complacent about overdraft program compliance

As I returned home from the 2017 CUNA GAC last week, I had the opportunity to reflect on how the timing of regulatory action on financial products and services impacts the credit union folks back home. During this year’s regulatory session, “The Consumer Regulation Regime for 2017,” a participant asked a panelist from the Consumer Financial Protection Bureau (CFPB) where overdraft programs fall in the Bureau’s current rulemaking agenda.

The panelist responded that any overdraft ruling was further down the list now and she did not expect any action before CFPB Director Richard Cordray leaves office in 2018. Another panelist added that credit unions should do more to help consumers in the overall overdraft space.

This comment was met with an abundance of input from attendees who shared their experiences of working frequently with members who appreciate and – in some cases – desperately rely on having access to an overdraft program when they face a financial emergency. Representatives from CUNA backed up member comments and shared similar feedback they have collected from consumers about the need for the service.

Multiple times during the program, Washington, D.C.-based compliance attorney panelists stressed the importance for credit unions to have a third-party review of their overdraft solution. They cautioned attendees that existing expectations regarding Unfair and Deceptive Acts and Abusive Practices (UDAAP) on areas with out-of-date regulation expose credit unions to risk they may not even know they have today.

Idling on the sidelines isn’t an option

While regulatory agencies have the flexibility to set their rulemaking agenda, credit unions must maintain an ongoing, consistent focus on meeting regulatory requirements for the services they offer to their members. I often stress to my clients that in an unclear regulatory environment, doing nothing with an outdated overdraft program does not make them safe. In fact, it may set their credit union up for examiner issues because they have neglected to look for better alternatives and update the service for their members.

On the other hand, by offering a fully transparent overdraft program, credit unions can avoid regulatory ambiguity and make a positive impact on their members’ ability to maintain financial stability with the following built-in safeguards:

  • reasonable, communicated fees;
  • clearly established and static overdraft limits;
  • transaction clearing policies that avoid maximizing member overdrafts and related fees created by the clearing order;
  • the ability to easily monitor excessive usage; and
  • communications materials that outline alternative financial services that more appropriately fit the needs of excessive overdraft users.

Plus, a program that includes the latest analytical, data-driven insight – along with robust reporting and tracking capabilities – makes it easier to measure program performance and promote responsible use.

Adherence to full disclosure and best practices leads to compliance peace of mind

Regardless of when the next regulatory announcement is made, credit unions can take steps to avoid compliance uncertainty by implementing an overdraft solution that is based on the most accurate regulatory guidance and best practices. This will enable financial institutions to assure examiners that their program is compliant with all regulations and guidance, while they build much stronger relationships with account holders and improve their overall performance.


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