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As the proverb goes, it’s easier to stop something from happening in the first place than to repair the damage after it has occurred.

With so many every day challenges, it may seem easier to put off re-evaluating how your bank or credit union is handling overdrafts until possible new regulations are finalized. For some it’s getting the program up to date, based on the most accurate regulatory guidance and best practices—for others it’s updating a non-disclosed program to a transparent solution. Regardless, the consequences of waiting around to make this decision can be detrimental, both in terms of financial and reputational impact.

Over the past several years, as Congress and regulators have wrestled with other pressing priorities, there has been little or no action taken to implement new regulations on overdraft programs. However, there have been multiple studies by consumer advocacy groups–based on supervisory data obtained from several large banks–that have examined overdraft practices, as well as the outcomes for consumers who do or do not opt in to overdraft coverage for ATM and one-time debit card transactions.

Most recently, information released in a Consumer Financial Protection Bureau (CFPB) Data Point report on frequent overdrafters, included information on new disclosure prototypes that are currently being tested to help financially vulnerable consumers better understand what it means to opt in to overdraft coverage. The American Bankers Association is expected to “work with the Bureau to test the proposed new disclosures to make sure they improve consumer understanding.”

Throughout this on-going study and testing period, regulators have never implied that financial institutions should be precluded from offering overdraft coverage for consumers. And there is no indication that any rule changes will be announced anytime soon. In fact, in a prepared statement, CFPB Director Richard Cordray recently stated, “We are not proposing any regulatory amendments at this time, though we are considering new overdraft regulations, and currently we are in the ‘pre-rule stage’ with no timing stated for when a rule may be proposed.”

This open timeframe presents a great opportunity to implement a compliant overdraft solution. If your bank or credit union has a non-compliant program, doing nothing could potentially put you at an increased risk for examiner scrutiny.

A proactive approach will lead to positive results

As industry conditions as well as consumer needs and expectations change, the potential for new regulations and guidance will continue to exist. Therefore, having the right resources in place for compliance expertise and best practices is essential.

For one of our clients, a community-based institution in the Southeastern U.S., regulatory uncertainty prompted them to discontinue use of their legacy overdraft program. While it seemed to be the best solution to alleviate their concerns around putting the institution and account holders at risk—the financial institution had to cope with significant revenue losses. Eventually they realized they needed to seek expert advice.

When the decision was made to once again offer an overdraft solution, management wanted to make sure they implemented a proven, compliant program to avoid any regulatory concerns and provide account holders with a reliable service.

With solid guidance and program management resources, the institution has experienced many positive results, both internally and from an account holder service perspective, including:

  • compliance peace of mind
  • increased accessibility to expert advice
  • improved training resources and support
  • better communication strategy
  • results beyond expectations

They now have an effective overdraft program on all fronts, along with the added bonus of recovering lost revenue.

There’s no reason to miss out

Regardless of when the next regulatory announcement is made, financial institutions can take steps to avoid compliance uncertainty by implementing an overdraft solution that is recognized as fully compliant. This proactive step will help to assure examiners that the program is in line with all regulations and guidance, while helping the institution build much stronger relationships with account holders and improve their overall performance.


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