The recent spotlight on overdraft programs by legislators and the stir caused by a few large financial institutions announcing they are eliminating overdraft fees has some community banks and credit unions taking a pause to reconsider their overdraft approach. While the number of institutions that have created media attention regarding overdraft fees is small and credit union decision-makers understand the recent CFPB criticism is more focused on larger banks, some are questioning what this means for the industry and their individual situation.
According to statements by top Consumer Financial Protection Bureau (CFPB) leadership, the risk of regulatory criticism comes from “excessive overdraft fees and non-disclosed limits and policies.” Most of the institutions that have curtailed fees did not previously offer a fully transparent overdraft solution and have made their decision based on a variety of factors.
Most consumers are savvy regarding overdraft services and fees
As economic pressures continue to pose a challenge to the financial stability of many Americans, consumer understanding of overdraft programs and the safety net they provide has grown. A recent CFPB study shows that consumers consistently use overdraft services and that usage is generally stable.
Remain agile to build member loyalty and trust
With all the attention being paid to overdraft fees, it makes good business sense to review your current strategy to determine if it aligns with your credit union’s mission, meets your member service goals and compliance expectations, and addresses the trends in the marketplace. Sometimes this involves adjusting your program strategies, tools and procedures to account for changing regulations and market situations.
Here are a few ways we have helped our credit union clients adjust their overdraft program to ensure they are maintaining a consumer-focused service while avoiding increased scrutiny:
- Recognizing that members should have a choice with regards to overdrafts and fees, JMFA has designed and implemented a new no overdraft/NSF fee account option to help our clients address the needs of their members.
- Addressing legislative criticism as well as current market conditions, our consultants have made recommendations to our clients to reduce their overdraft fee, incorporate a de minimus or daily fee cap, institute a grace period and have provided projections on usage, based on JMFA’s historical data.
- Developed an effective communication plan for members about the service, including properly disclosing the costs of their program and highlighting alternative overdraft options such as transfers from savings or a line-of-credit. Emphasizing that Overdraft Privilege should be the member’s last option for a short-term cash need.
- Plus, we always provide reporting tools to understand program usage and proactively offer additional support and/or counseling for members.
Ultimately, doing the right thing for your members should be your goal, not simply eliminating overdrafts. A fair, reliable and easy-to-understand overdraft service that members can count on to avoid more costly alternatives will help them maintain their finances and underscore your commitment to serving their needs.
Rely on results-based program navigation expertise
The best way to stay on course is to partner with an overdraft program implementation and management expert who starts out by listening to the pressures you are experiencing and understanding your strategic plan. With that information in hand, experienced consultants can help you and your staff determine the right overdraft strategy for your members and your credit union, based on your unique goals.
If you are contemplating changes to your overdraft strategy to complement your other services, make sure your decision is based on guidance that utilizes best practices and consumer-focused recommendations. A fully disclosed, reasonably priced overdraft program can help your members avoid the additional headaches caused by not having a safety net to rely on should they need it. In addition to providing a better service that they appreciate, it will lead to long-term relationships and mitigate any potential compliance concerns for your credit union.