An August 17, 2016 article entitled, “Disparate impact studies especially tough on dynamic matrix systems,” caught our attention. The article, in our opinion, attempted to cast a negative light on “overdraft matrix systems” or overdraft processes that can cause a customer’s discretionary overdraft limit to change from time-to-time based on the risk profile of the customer.
On Friday, July 22, 2016, the Consumer Financial Protection Bureau (CFPB) published proposed rules and a request for public comment to establish a new consumer regulation that would regulate payday loans, vehicle title loans, and certain high-cost installment loans (“Covered Loans”).
The Bureau is particularly concerned that some lenders of Covered Loans fail to assess the consumer’s ability to repay the loan; it is also concerned with the practice of withdrawing loan payments directly from the consumer’s accounts.
For financial institutions seeking reliable and safe sources of additional fee income, this news is welcome indeed.
The current state of the overdraft industry can be summed up in one word, “WAITING.”
BSG Financial Group hears from some institutions that they are delaying offering an overdraft privilege program until the Consumer Financial Protection Bureau (CFPB) decides how financial institutions must manage consumer and business overdrafts.
This waiting reminds us of a quotation from the novelist Morris West who wrote, “If you spend your whole life waiting for the storm, you'll never enjoy the sunshine.”
We—banks, credit unions and service providers—have all been waiting for more than two years for the regulatory agency to finally announce its conclusions. Now it looks like mid-2018 before any material changes might occur. And even then, the changes recommended by Pew Charitable Trust (hired by the CFPB to handle the research aspects of their regulatory review) seem rather minor: revised disclosures, reasonable fees, and standard posting order.
In the meantime… while we wait, your account holders seek short-term liquidity elsewhere and your bottom line pays the price.
BSG Financial Group will present a webinar entitled, "The 5Ds of an Optimized Overdraft Management Program," on Thursday, September 15 at 2:00 pm EST.
The FREE webinar, hosted by CPA firm Porter Keadle Moore, will outline the essential elements of a modern overdraft privilege program that provides world-class service to account holders while managing risk.
Most financial institutions acknowledge that overdraft fees represent a remarkable source of non-interest income. What may not be clear to some is the fact that overdraft privilege programs are more than just a source of revenue. Recent data suggests that the service offers as much of a benefit to the consumers who use it as it does to the institutions that provide it.
Consumer Financial Protection Bureau (CFPB) director Richard Cordray has said on many occasions that his agency is not looking to do away with overdraft services (but is instead leaning toward minor changes in how institutions manage the programs). As such, it doesn't appear overdraft programs are going away.
So how should community institutions view overdraft privilege in the current environment?
If you have questions of your own regarding Digital Lending, feel free to submit them in the Comments box below and we will answer them right away.Is there any human intervention prior to funding the loan?
The level of human intervention in the loan approval process can be defined by your institution.
The MinuteLender™ technology can automatically approve individuals and small businesses for loans based on your institution's underwriting and risk tolerances with a matrix. Alternatively, your institution can employ processes after the submission of an application to add steps for final approval. For example, some community institutions like to personally review the loan accounts before completing and funding the loan. The MinuteLender platform provides the flexibility to be tailored to your institution's objectives.
BSG Financial Group recently conducted an educational webinar called Digital Lending for Financial Institutions. It was our most popular session to-date, so we thought it would be helpful to share some of the questions attendees asked as well as our answers.
We will feature several more questions from this popular webinar in a series of blog posts to follow. If you have questions of your own regarding Digital Lending, feel free to submit them in the Comments box at the end of this post and we will answer them right away.What loss ratios can we expect with online lending?
We often get this question, and the answer is: if you’re using the same criteria for online lending as you do in-branch, the losses are going to be the same. The MinuteLender™ system for business and individuals provides the loan delivery platform, but it uses your institution’s guidelines for underwriting rules.
In this corner… the Contender, Fixed Limits, challenging the formidable upstart, Dynamic Overdraft Limits….
Indeed it may seem like you’re in a boxing match when deciding which type of overdraft limits you will offer in your automated discretionary overdraft program.
Both types of limit-setting strategies enable your institution to automatically allow or disallow overdrafts for those account holders who utilize your service.
FIXED LIMITS provide a “one-size-fits-all” approach that is determined at account opening. All account holders who qualify to be in the program, receive the same overdraft limit; OR the limit varies based on account type (i.e., $550 for Free Checking and $750 for Premier Checking).
DYNAMIC LIMITS are calculated automatically based on a myriad of account holder data points, including specific deposit and overdraft activity, related balances and more. This data enables your institution to establish a risk profile for each account and assign individualized overdraft limits based on the account holder’s ability to repay the overdraft and fees at any given time.
However, from our perspective, a vendor relationship and a partner relationship are not the same; and when it comes to your overdraft program, a vendor just won’t cut it.
Managing a service that generates such a large percentage of your institution's overall non-interest income requires a true partner to your company. This partner should work as an extension of your business understanding and anticipating your goals and needs.
Right on the heels of our latest product release, I am pleased to unveil the addition of another revenue-generating solution for financial institutions: PaySound®—the online checking account that does not allow overdrafts.
PaySound combines a full-service, mobile-ready checking account with an optional line of credit (from $500 to $5,000) for those of your account holders who do not want to incur even a single overdraft charge. These account holders may have opted out of your discretionary overdraft program or they use alternative sources of short-term funding.
For whatever reason, they do not want their financial institution to allow them to spend more than they have in their accounts; and recent research shows that many of them are willing to pay for the certainty of no overdraft fees.
PaySound helps your institution provide that assurance, extremely quickly and inexpensively, while offering a simple back-up funding plan in case of emergencies or when they fall short. The system never assesses an NSF (non-sufficient funds) charge even for returned ACH (Automated Clearing House) and check items.
The program creates a new stream of income for your institution from the account's monthly charge, interest and debit card interchange fees, at a time when revenue-generation and profitability are paramount. It also helps your institution address the Consumer Financial Protection Bureau's (CFPB) directive to allow greater access to checking account alternatives, especially those that do not permit a consumer to overdraft.