Does your overdraft solution pass the pandemic stress test?

Due to the impact the spread of coronavirus has had on the U.S. economy thus far, unemployment claims have surged well beyond expectations. More than 30 million Americans have applied for government aid since mid-March, according to recent Department of Labor data. This doesn’t account for individuals who are newly unemployed, haven’t yet filed for unemployment benefits, or who may be impacted before the pandemic subsides.

As restaurants, retail stores, recreational facilities and travel-related businesses remain closed or operate on a limited basis due to the pandemic, many individuals and families continue to struggle with how to pay for rent, groceries, medication, insurance and other necessities. With continued uncertainty in other affected industries, the economic impact on consumers continues to become more widespread.

In such uncertain times, your members need reliable programs and services to help them meet their ongoing financial obligations and provide for their families. Unfortunately, overdraft programs that are based solely on analytics and data aren’t prepared to address the situation many people find themselves in today.

Non-disclosed service parameters lead to confusion and limit financial certainty

Due to unexpected reductions in work hours, furloughs and layoffs, some members—many of whom have never had an interruption in their paychecks—are experiencing lower than normal, or no regular checking account deposits. An overdraft program with variable limits—that change based on a pre-determined algorithm—automatically reduces a member’s access to overdraft coverage when his or her balance dips below a certain level. Or, the privilege is removed completely, at a time when it is needed most.

Programs based solely on analytics also lack the ability to provide personalized service or consider important aspects of a person’s overall financial health or extenuating circumstances—such as their ability to repay—or something as financially devastating as the situation so many Americans find themselves in today.

Without knowing what their overdraft limit will be from one day to the next—or if they will have protection at all, how can consumers feel confident making the necessary purchases they may need to get through the uncertain weeks and months ahead?

Are you providing your members with financial peace of mind?

As you consider all the reasonable and prudent steps you can take to assist those who are affected by the coronavirus, consider this: Now, more than ever, they may need the option of an overdraft service they can rely on and trust. A consumer-focused overdraft strategy provides clear disclosures, ongoing communication and guidance to help individuals solve their financial challenges with features like:

  • upfront program details;
  • fully disclosed limits;
  • reasonable fees;
  • neutral transaction posting order that does not maximize fees;
  • on-going communication regarding account status;
  • access to other services provided to meet individual circumstances; and
  • tracking that alerts your institution to potential situations where credit counseling may be beneficial.

Address uncertainty with services that provide financial stability

There’s a lot of speculation in the industry about how the coronavirus pandemic might change the way financial institutions operate going forward. One thing that shouldn’t change is the ongong commitment to providing fully disclosed services to help consumers who may be hit with unexpected financial situations or need extra support during these difficult times.

When all is said and done—and things return to a more stable situation— will your members be able to look back on how your credit union’s overdraft solution provided the support and service they needed? The measures you take today can strengthen the value you provide and give them confidence that you’ll be there should unexpected financial circumstances happen in the future.

Richard Miller

Richard Miller

Richard joined JMFA after a 23-year career in banking, providing JMFA and our clients with a broad base of management experience in community banking, from chief lending officer to president ... Web: Details

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