How to maintain a worry-free overdraft strategy

Ongoing employee education and transparency are invaluable

As the overall economy is making strides, many Americans continue to experience financial difficulties as they did before the COVID-19 pandemic. Amid concerns over the impact the last year and a half have had on consumers’ financial well-being, a few members of Congress have once again called attention to claims of deceptive practices relating to financial services. 

For instance, on the 10th anniversary of the Consumer Financial Protection Bureau (CFPB), Massachusetts Senator Elizabeth Warren—a long-time critic of undisclosed overdraft practices—called for oversight to “hold bad actors accountable for predatory behavior.”

In June, New York Congresswoman Carolyn Maloney introduced legislation to amend the Truth in Lending Act to establish “fair and transparent practices related to the marketing and provision of overdraft coverage programs.” Like her eight previous attempts, the proposed Overdraft Protection Act of 2021 targets unreasonable fees, undisclosed processes and procedures; limits the number of fees charged; requires consumer opt-in for overdraft coverage; seeks to improve transparency and disclosures; and more.

Latest proposal lacks anything new

Interestingly, many of Representative Maloney’s recommendations have already been put into place. It seems unlikely this latest legislative effort will restrict the ability of credit unions to provide such a valuable service to members. Since 2005, regulators have been consistent in addressing issues related to providing consumers with clear, easily understandable disclosures and ongoing compliant communication to increase awareness of how to access and utilize overdraft services. With that said, if you are offering a well-managed, easy-to-understand and consumer-focused program, you are headed in the right direction.

Commit to improving member communications 

With the continued focus on transparency, it’s a responsible business practice to have simplified and effective communication with your members. Reviewing and evaluating your program’s communication impact is the best way to alleviate any confusion about how your program works and the fees associated with its use. For that reason, having the right resources to offer effective employee training is essential to making your efforts successful. 

Given that the work environment has been disrupted for so long, regularly offering educational opportunities for all staff interacting with members can make all the difference. Whether in-person, by phone, through a chat function, or on your website or social media—your members should hear the same message. Without periodic reminders and reinforcement, it’s not unusual for important details and best practices to be overlooked. Often staff may lose the confidence to explain program specifics that continue to attract the attention of some lawmakers and consumer advocates.

Comprehensive training delivered through convenient and effective channels for all learning styles ensures employees have a more thorough understanding of your overdraft program details and the certainty to explain the service to your members with confidence.

Be mindful of expectations and best practices

In addition to providing staff training resources, your program’s practices and procedures need to measure up to both regulatory and consumer expectations. Here are a few things to consider that can put your credit union at risk if your program is out of sync:

  • Are your overdraft fees significantly greater than the amount of the item being cleared?
  • Do your item-clearing procedures maximize overdrafts and related fees? 
  • Do you charge overdraft fees on ATM and debit card transactions to those who have not opted in for the service? 
  • Are your overdraft limits and fees consistent and easy to understand?
  • How knowledgeable is your staff when it comes to disclosing the details of how your overdraft program works? Do all of your members hear the same message?
  • Are your members well informed about the alternative services you provide to help them with occasional liquidity needs?

Mitigate potential compliance concerns

While there are currently no imminent signs of new overdraft program regulations, the focus on consumer protection issues remains strong. An experienced overdraft program provider will help you navigate the complexities of the regulatory environment and mitigate any potential compliance issues—including litigation. 

And by increasing your commitment to employee training and program transparency, you can worry less about successfully demonstrating your commitment to providing conscientious financial services to all of your members.

John Cohron

John Cohron

As chief executive officer, John provides leadership, planning and oversight for the company. He joined JMFA in 2002. As executive vice president of operations and chief information officer, John was ... Details

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