The beginning of a new year is a time of renewal. It’s also when many of the holiday bills arrive. A few weeks of overspending can create financial stress and pressure for months. One measure credit unions can take to help members is to offer a reliable financial safety net.
Having access to this type of option provides peace of mind, should they need it. Is your overdraft or courtesy pay program in top form to support your members?
It’s been a bumpy ride
Although the National Bureau of Economic Research has not formally declared a recession yet, most analysts expect one in 2023. However, financial struggles have certainly taken hold for many.
Month over month, the average inflation rate in Fall 2022 ranged from 7.1 to 8.2%. The median rent price in the U.S. increased 7.45% year-over-year (Nov. 2021-Nov.2022) to $2,007 per month. Add to that the price of food rising 11.4% over the past year plus higher energy costs, and what we have is financial instability for many households.
It’s no surprise that 46% of Americans are investing and saving less than usual. According to a recent holiday debt report, 35% took on holiday debt this past December. That means zero or negative balances can be expected as holiday bills, annual property taxes or fees come due.
The backup plan
Nobody tries to overdraw their account, and nobody likes to live paycheck to paycheck. But it happens. And it’s happening now for many, as bills and balances catch up with holiday spending and everyday expenses. The best thing you can do is have multiple methods of supporting your members—like a fully disclosed overdraft service—to help them maintain financial health.
For your members a one-time overdraft charge may be much more appealing than having their important payment declined and being assessed late fees and lowered credit scores.
We know that 9 out of 10 adults find overdraft protection valuable. And we’ve seen credit unions achieve positive outcomes when providing their members value through overdraft services. Does your credit union offer an overdraft service that your members can rely on?
A much-needed service that supports members
A consumer-friendly overdraft program is the safety net that your members may need and will appreciate having the option available. Consumer-friendly means transparent, fair, compliant and easy to understand.
- Transparent in that it is fully disclosed so your members know how the service works, including their limit and fees for using it.
- Fair in that the fee assessed is in line with the amount of the overdraft.
- Compliant in that it adheres to all regulatory rules and best practices, which are meant to protect consumers.
- Easy to understand in that members know what to expect if they decide to use the service.
Be proactive and prioritize
If you’re unsure whether your program meets these standards, take a good look at your strategy and determine if there is a need to make changes.
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 don’t 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 member communication transparent and easy to understand?
- Does our staff receive the training necessary to properly explain the service to members?
- Do we have the right resources and tools to run an effective and responsible program?
Make sure your credit union is ready for what may be a challenging time for your members. Redefining your overdraft strategy will ensure you can deliver on your mission to promote financial health and well-being for your members. Now is the perfect time to put your plan in place.
To learn more about how you can offer a responsible, compliant service that offers value to your members, contact the experts and JMFA.