It’s a disconcerting, but true, fact: when members of your credit union use your debit card and their transactions fail, they blame you.
Consider the negative buying experience below, which I suspect is an all-too-familiar occurrence that puts your member relationship at risk.
The scenario: One of your members goes to the grocery store to buy a cart-full of items for her daughter’s 16th birthday party—you know, the good stuff, like pizzas, soft drinks, ice cream and chips. The guests will be arriving in an hour and time is of the essence to get the groceries home and get the party started.
The total for all these delicacies is a bit more than she can afford at the moment (payday will be in two days). The member, who is enrolled in your credit union’s discretionary overdraft service, presents your debit card for payment, knowing the transaction will overdraw her account. However, she is willing to pay the $35 NSF fee she will incur in order to see the smile on her daughter’s face.
The only problem: the debit card transaction is declined.
“I know I have overdraft protection on my account; why does this keep happening?” your member mutters to herself. All of her groceries are bagged and in her cart. A line of people have formed behind her. She is unable to pay, bewildered, and not sure what to do next. As it turns out, the grocery store agrees to hold her items while she waits for her husband to bring a credit card to the store, which she will use to finalize the transaction. “This is so embarrassing,” she says to the store clerk. “So much for using this debit card again!”
Do you know how many of your members have experienced a similar situation? Are you able to track this type of failed transaction? Could you prevent it from happening again? How would you save the relationship?
Of course, there are many reasons why a debit card transaction could be denied (an incorrect PIN was used, there were problems connecting to the network, etc.). But approximately half of all declined debit card transactions are declined due to non-sufficient funds (NSF) at the time of the transaction.
In the scenario above, your member clearly knew her available balance would not cover the transaction. What she did not know, however, was that your credit union had never obtained her “affirmative consent” as outlined in the 2010 Amendment to Regulation E, otherwise known as a “Reg. E opt-in” decision. Perhaps at account opening she had not clearly understood the benefits of opting in to the overdraft service on ATM and one-time debit card transactions, so she did not make a decision.
Regardless, without this decision, your credit union declined the transaction.
Surprisingly, most consumers have not opted in or even made a decision about Reg. E, and it’s a fair bet that nearly as many are not even aware this is an option. The reason is that most financial institutions conducted a one-time outreach campaign to obtain Reg. E decisions way back in 2010, but they haven’t revisited those decisions since.
As a result, as many as 50% or more of your members who qualify for your discretionary overdraft program may not have made a Reg. E decision and may have endured negative purchasing experiences (and their accompanying frustrations). Ensuring that those members who want the overdraft service at this channel have access to it is critical. Not only do consumers today use debit cards more than checks or even credit cards, but when debit card transactions are declined, members become frustrated and use your institution’s debit card less frequently. The relationship sours and your credit union loses goodwill, not to mention interchange fee and overdraft fee income.
The solution is to proactively communicate with members about their Reg. E decision:
- At account opening (using a Reg. E Model A-9 Consent Form or similar), and
- After they experience a debit card denial due to NSF, and they have not made a Reg. E decision yet (utilizing a Reg. E outreach program).
Reg. E outreach, which includes identifying members who have experienced a denied debit card transaction and contacting them directly, provides a high level of service by educating the member about the reason a debit transaction was denied, as well as explaining your credit union’s overdraft options that could help them pay these types of transactions in the future. The discussion seeks to obtain a Reg. E decision (whether opt-in or opt-out) but should never steer or coerce a member into a particular decision. It should be well-timed and conducted by knowledgeable staff using professional scripts.
If your credit union does not have the resources available to conduct a formal Reg. E outbound effort, seek the guidance of a reputable overdraft services provider that offers training, templates and expertise to help you manage this critical process in a compliant way.
Obtaining a Reg. E decision is more valuable than you may know for the satisfaction of your members and the future of your credit union.