While reading the latest installment of the Temenos Group blog, the old advertising line, "When E.F. Hutton talks, people listen," came to mind. Temenos is one of the largest producers of software for banking and finance, with over 2,000 clients across the globe, including 41 of the top 50 banks. The company, which spends 20% of its sales annually on R&D, is well-respected for its deep industry knowledge that helps customers stay ahead of a changing marketplace. When Temenos comments on an industry trend, people tend to listen. Or they should.
What the company had to say about courtesy overdraft programs may cause your financial institution to re-evaluate the solution you currently offer... or make you scramble to get one in place.
In a nutshell, Temenos Chief Compliance Advisor, Blair Rugh, stated emphatically in the blog post:
"If you do not oﬀer a courtesy overdraft program, I suggest you reconsider your decision.
Maybe your initial decision was correct for your institution at the time it was made, but possibly now that the dust has settled and the issues are better deﬁned a diﬀerent decision would be more appropriate."
Rugh says in his article that although customers loved the original automated overdraft privilege programs for the service they provided, regulators did not–due, in part, to some third-party providers' egregious advertising practices. The long list of regulatory "do's and don'ts" that ensued, combined with a seemingly never-ending review by the CFPB to determine the fate of courtesy overdrafts, caused many financial institutions to drop their programs. However, Rugh states:
"I thought that was a mistake at the time [dropping overdraft programs] and I feel it is a mistake now.
There are not a lot of things that banks can do that are profitable and their customers actually appreciate."
Rugh is encouraged that the CFPB's research of overdraft protection has yielded what looks to be only a minor adjustment in the rules: the adoption of one of four different customer disclosures to replace the current Appendix A-9 to Regulation E. "It will be a while before one of the formats (or all of the formats as alternatives) will be adopted, but be on the lookout for the change." With this minor tweak to courtesy overdraft best practices, Rugh states that "the environment now appears to be settled and the rules established."
In providing a courtesy overdraft program to your customers, he says, "follow all of the rules, use one of the new tabular disclosure formats when they are formally adopted and enjoy the results along with your customers."
Will your financial institution listen? Let us know!
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