Lizeth GeorgeBy: Mark Roe, JMFA Executive Vice President of National Sales
With the holidays upon us, price increases on everything from groceries to gift items to gasoline could have a Grinch-like impact on consumers who were already struggling with the ongoing economic impact of COVID-19.
In response, 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, including:
- merchant fees and penalty fees
- the returned items being re-presented
- difficulty accessing credit and/or the possibility of higher interest rates being charged for future credit needs
- losing access to auto-pay for important bills
- reliance on higher-priced access to cash, such as payday loans
What’s more, while these “no-fee” programs may pay some items, all—including critical family expenses, such as a mortgage or car payment—are at risk of being returned. And, if you take a closer look, some institutions charge low-balance fees if an account is not returned to positive within a certain number of days. Others will only not charge a fee up to 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 and cause additional stress for consumers.
Let’s face it, when your members experience an unexpected expense that depletes their account balance, knowing their transactions will be paid is greatly appreciated. Plus, when all the details about how the service works are provided upfront, including the fees, it builds trust in your credit union. The best approach is a fully disclosed and responsible overdraft solution. By providing your members a safety net they can rely on should they need it, you’ll eliminate uncertainty and give them financial peace of mind.
A responsible service is the best strategy
Evaluating your overdraft strategy to ensure it is a responsible service that benefits your members and your credit union without the right resources is challenging. But, having the expertise of program implementation consultants working alongside your staff is the best way to achieve a customized solution, based on your goals. On-going advice will help your team gain insight and confidence in the many ways to optimize program results. For example:
- Is your fee structure priced appropriately?
- What’s the impact of making a change to your fees?
- Is your program consumer-friendly and easy to understand?
- Do you have the appropriate limits in place for your members?
- 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?
Plus, access to valuable tools that help sustain more effective program management, including compliance expertise, offers tremendous value. Moreover, this approach will complement your internal capabilities while providing additional support to surpass your goals.
Consistency has lasting implications
How you choose to approach serving your members 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 members and your credit union. It also goes a long way toward building trust and establishing you as a partner in creating financial security for consumers in your market.
