Five overdraft best practices for stronger member relationships
An overdraft program that follows industry best practices can help build life-long loyalty. Is your credit union offering a responsible overdraft service that offers value for members?
According to the most recent survey from Bankrate1, U.S. adults, on average, have held the same checking account for 17.75 years, with adults age 55+ keeping the same account for 24.6 years, on average. Many life events can occur in that length of time, including home purchases, starting a business, building savings, and investing for the long term. And these are all life events that your credit union can play a part in to build long-term relationships with your members.
However, nothing happens overnight — sometimes, there are oversights along the way, like overdrafts. But you can have your members’ backs in these times of need. When your credit union has an overdraft (or courtesy pay) service that your members can rely on during these bumps in the road, you’re laying a solid foundation for the future.
One negative overdraft experience could cost you a member
People have more options than ever before when it comes to their banking needs — and there are likely a variety of offers tempting them to switch. One negative experience with your overdraft service could be why a member walks away.
In order to offer the most consumer-friendly program, your credit union should build its service around and for your members. That means it should be:
- Easy to understand when it’s explained by your team or in written form
- Fully disclosed, clearly communicated and transparent so your members do not encounter any surprises
- Compliant with all state and federal regulations
- Reasonable fees for your market
- Valuable enough to consumers to make it worth using
Invariably, your members will have unintentional overdrafts and when that occurs, they may need some support. Overdraft programs continue to be a valuable service for consumers, and your credit union has the opportunity to fulfill an important need.
Regulators emphasize the importance of evaluating overdraft strategies
The NCUA has issued statements urging credit unions to take a closer look at their overdraft programs now if they haven’t already done so. Similarly, the OCC and FDIC have released statements expressing banks to do the same.
One of the critical areas includes your practices for clear disclosures surrounding “authorize positive, settle negative” (AP/SN) transactions and re-presentment fees. Plus, you’ll want to provide other alternatives and easy-to-understand options for your members to avoid an overdraft fee.
Having a consumer-friendly program starts with carefully reviewing the program through the lens of your members. It’s putting your members first. If you’re unsure whether your program meets and exceeds the expectations, take a closer look at your strategy, and determine if there is a need to make changes.
How to evaluate and improve your overdraft program
Evaluating, diagnosing, and implementing improvements is the easiest way to get your overdraft program back on track. Keeping your goals, your market and how your members currently utilize it in mind, ask yourself:
- Are our fee amounts reasonable?
- Do we offer an overdraft threshold (de minimis) to ensure members do not get charged a fee unreasonably?
- Do we have an appropriate daily cap on fees?
- Do we offer a grace period that allows members to bring their account positive and avoid a fee?
- Are our service disclosures clear, updated, and readily available?
- Is our communication transparent and easy to understand?
- Does our staff receive the training necessary to properly explain the service?
- Do we have the resources and tools in place to run an effective and responsible program?
Show your members you’re in their corner
Redefining your overdraft strategy will ensure you can deliver on your mission to promote financial health and well-being for them. These and many other best practices can help you deliver a responsible overdraft service that your members can rely on.
When you put overdraft best practices into motion today, you’re planting the seeds of trust that can grow into stronger member loyalty through all stages of their financial lives.
For more information and to find out how to put your best foot forward in today’s challenging environment to help create that member loyalty you’re looking for, download the e-book, “Does Your Overdraft Program Check All the Boxes?” from JMFA.
1 https://www.bankrate.com/banking/how-long-people-keep-their-checking-savings-accounts/
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