adminBy Cheryl Lawson
JMFA’s EVP, Compliance Review
After living through the financial upheavals and a general sense of uncertainty over the past eight months, consumers are feeling a bit of fright—and it isn’t because Halloween is just around the corner. Dealing with ongoing financial challenges is scary for consumers who have lost their job, have seen their hours decreased or who worry about what the upcoming months may bring as they try to stay afloat financially.
As they look for resources and advice on how to pay their bills and take care of their families, many consumers depend on overdraft protection provided by their financial institution. But just like the contrast between fresh caramel apples and last year’s trick-or-treat candy when you remove the wrapper, not all overdraft programs offer the same satisfying solution.
Offer a mystery-free, reliable choice
With nothing to hide, a fully transparent overdraft program, that is based on fixed limits, provides members with upfront disclosures that describe how the program works and how much it costs to use the privilege. This allows an individual to make an informed choice regarding whether or not to use the service when an unexpected expense occurs that exceeds his or her account balance. At any time, the member can opt out of coverage and best of all, there are no shocking unknowns that could add to an already stressful situation.
Plus, by addressing all of the guidance and industry regulations introduced since 2005, a fully disclosed program also provides your credit union with compliance peace of mind and other advantages, such as:
- a 100% compliance guarantee and advice on best practices;
- ongoing program monitoring, including quarterly reviews and annual on-site visits;
- extensive training to increase understanding of how the program works and its value to members;
- in-depth account tracking, data analysis and reporting to reduce charge-offs;
- compliance-tested messaging to simplify the communications process; and
- access to periodic program updates and analytics to improve program management.
Watch out for solutions that are full of tricks
On the other hand, overdraft programs that are matrix-based, with dynamic limits that are established using mysterious algorithms that change on a daily basis, do not provide on-going confidence or financial security for your members. These types of programs also can put your credit union at a potentially higher compliance risk because important information isn’t disclosed to members and the rules don’t apply to everyone equally.
And, because the program is secretive, other concerns could haunt you and overshadow your member service quality, including:
- members don’t know their limit, or if they even have one;
- they can’t rely on when an item will be paid and when it will not;
- they can’t opt out because the program is undisclosed;
- employees can’t explain the program to members because the information is confusing and inconsistent; and
- you could be subject to increased scrutiny of discrimination or unfair practices if the program has a disproportionate impact on some members.
Beware of haunting practices monitored by regulators
With all of the unknowns you are dealing with amid changes in how to effectively provide service during the pandemic, it’s imperative that you maintain awareness of the issues that remain on regulators’ radar. While no new regulations on overdraft programs are currently in play, issues related to Reg E and opt-in disclosures for one-time ATM and debit transactions remain a focus.
When steps aren’t taken to ensure that program procedures follow best practices and are properly disclosed, or financial institutions violate regulations on when fees can be charged on electronic transactions, there is a price to pay—through regulatory consent orders, fines and potential class action lawsuits. Not to mention the reputational damage these actions can cause.
Additionally, it’s imperative not to take for granted that your members are aware of your overdraft solution or understand how your program works. They might be wondering about it but forget to ask or feel too intimidated if they aren’t familiar with your frontline staff.
Don’t be tricked by “plug and play” solutions
As the number of unemployment claims continues to be worrisome, some households are being impacted economically much more than others. Consumers who are facing these challenges continue to contend with many unknowns. They need the option of an overdraft solution that is easily understood and reliable — not a non-disclosed product that sends chills up their spines.
If you’re looking for a fully compliant—no hocus pocus—approach to helping your members safely cover their occasional financial shortfalls, a transparent overdraft service will provide the most satisfactory results for your members. And a solution that provides contingency-based pricing prioritizes your success.
Remove the mystery for total satisfaction
Does your overdraft program offer your members a transparent option when they need a financial safety net, or does it leave them in the dark?
When members are confident that they’re getting consistent information about their account status—whether through electronic or face-to-face communication with frontline personnel—their confidence increases. When they know they can rely on the support they receive from their credit union to get them through their short-term financial needs, their satisfaction and loyalty will be revealed for all to see.
Please contact your LEVERAGE BDC for additional details:
Karen Frazee karen.frazee@myleverage.com 850.545.4825
Steve Pullara steven.pullara@myleverage.com 813.404.6877
Donnette Logan Donnette.Logan@myleverage.com 205.294.4227
Taylor Sheffield taylor.sheffield@myleverage.com 205.457.4261
