Blog

Dynamic Overdraft Limits a Hot Topic with Industry Executives

Posted by Jeff Harper, President, BSG Financial Group on Jun 21, 2018 10:39:26 AM

Formal discretionary overdraft programs—despite their past stigma—are a topic for consideration again for financial institutions. I draw this conclusion based on the hundreds of conversations I have had over the past several months with financial executives while attending and exhibiting at various industry trade shows and conferences.

It seems many institutions that had previously adopted a 'wait and see' stance about implementing a discretionary overdraft program are moving forward in doing so. Some executives said the encouraging news coming from the CFPB is their impetus to modernize. Other institutions simply realize their programs are outdated, inefficient and need to be updated in order to provide exemplary service and generate new income.

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Topics: Compliance, Fixed Overdraft Limits, Overdraft Management, Dynamic Overdraft Limits

Capitalize on Easing Banking Regulations: Provide Better Service with a Compliant Discretionary Overdraft Program

Posted by Jeff Harper, President, BSG Financial Group on Feb 6, 2018 9:08:36 AM

A year ago, President Trump signed an executive order that directed agencies to identify two regulations to cut for every new one they intended to issue. We're 37 days into 2018 and it appears the president is keeping his word: “In our drive to make Washington accountable, we have eliminated more regulations in our first year than any administration in history of our country,” Trump said during his State of the Union speech last week.

Even the most cynical nay-sayer should feel positive about this changing regulatory climate.

We are especially encouraged with regard to the future of automated overdraft programs for several reasons:

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Topics: Compliance, CFPB, Overdraft Management

The power of segmentation & personalization in overdraft communications

Posted by Jeff Harper, President, BSG Financial Group on Aug 2, 2017 9:20:58 AM

This article was originally published on CBInsight.com.

In today’s highly digital, data-driven environment, account holders have come to expect personalized attention from the company’s they engage, including their financial institution. They want businesses to provide relevant and desirable services and solutions based on their needs and they often switch companies when communications are generic and impersonal.

Unfortunately, seventy-nine percent of consumers consider their relationship with their financial institution to be purely transactional, according to an Accenture Consulting study. However, by delivering more meaningful engagement, banks and credit unions can generate better response rates, as well as increase loyal account holder relationships. And thanks to modern technology, this one-to-one communication can be created dynamically based on your account holder’s account activity and a myriad of other data points.

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Topics: Courtesy Overdraft, Compliance, overdraft communications, customer service

The Outlook for Automated Overdrafts Seems Bright

Posted by Jeff Harper, President, BSG Financial Group on Nov 28, 2016 6:28:51 PM

Now that the election is over, there is much speculation about how a Trump presidency will impact our industry. Most everything we read is positive, especially about the future of automated overdraft programs. 

In particular, we are encouraged by:

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Topics: Overdraft, Compliance, CFPB, Overdraft Compliance, Overdraft Provider

Overdraft Privilege Myths Debunked

Posted by Jeff Harper, President, BSG Financial Group on Aug 16, 2016 11:59:28 AM

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?

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Topics: Courtesy Overdraft, Compliance, Overdraft Protection, CFPB, overdraft privilege

Review 'Fourth-Party Vendors' To Reduce Financial Institution Risk

Posted by Michele Rehm, Marketing Manager on Apr 21, 2016 7:00:00 AM

Just when you thought you had your arms around your vendor management program, auditors and examiners are now inquiring about your vendor’s vendors—or "4th-party vendors" as we refer to them in this discussion.

Why are 4th-party vendors important to your institution's safety?

Like you, your 3rd-party vendors are deeply reliant on some of their vendors, and these are the ones you need to concern yourself with to some extent. These vendors show up in your vendor’s SSAE-16 reports and should also be easily identified by your vendor as those classified as critical in their own vendor management matrix.

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Topics: Compliance, Vendor Management

Published article: Use the right overdraft provider to do the right thing

Posted by Jeff Harper, President, BSG Financial Group on Apr 12, 2016 7:00:00 AM

Published on CUInsight.com, April 8, 2016

I think we can agree that there are consumers who need short-term liquidity options. Among several recent studies, the Brookings Institution reveals that one-third of American households live paycheck to paycheck; and American Banker data cites that 54% of checking account customers are in poor financial health.

Financial institutions can provide a valued service by offering a compliant overdraft privilege program to help these individuals manage unexpected, ill-timed expenses. In fact, a recent study by Novantas said that 66% of overdrafts occur when consumers knew they have a low balance, but want the payment to go through anyway.

So how does your financial institution offer a cost-effective service without encouraging reckless behavior? A good place to start is to review how your third-party overdraft vendor is compensated, which can affect the way the program is viewed by regulators and how it is executed vis-a-vis account holders.

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Topics: Overdraft, Compliance, published articles

Published article: Automate your overdraft program & reduce risk

Posted by Michele Rehm, Marketing Manager on Mar 29, 2016 9:21:44 AM

by Jeff Harper, BSG Financial Group
Published on CUInsight.com, March 14, 2016

Never before have financial institutions been under the type of scrutiny they are today. Regulations and guidance imposed by the OCC, FDIC and the CFPB have forced institutions to not only monitor their overdraft protection programs more closely, but to also justify their very existence. Still, it is possible to balance the rewards of providing this short-term liquidity service with the financial and compliance risks it can pose, but it requires a new level of expert analysis and automation.

Gone are the days of the “one-size-fits-all” overdraft programs where all accountholders of a particular account type received the same overdraft limit. Institutions today must rely on more advanced algorithms and accountholder data to guide them in setting the correct overdraft limit, on the correct day, for the correct person. Without this level of sophistication, financial institutions put themselves not only at risk with regard to income and customer service, but at a loss when explaining to regulators why they paid certain items for an accountholder when the accountholder clearly did not have the ability to repay the overdraft.

Automatically Set Dynamic Limits

Modern overdraft management software can provide automated scoring capabilities that actively manage risk and keep your overdraft program compliant. Far from the “one-size-fits all” approach to setting overdraft limits, automated and dynamic scoring enables your institution to create a risk profile on a daily basis for each individual accountholder and assign an overdraft limit based on that accountholder’s ability to repay. Dynamic limits can be calculated automatically based on a multitude of accountholder data points, including specific deposit and overdraft activity, as well as related balances and more.

The ability to set dynamic limits, lets your institution provide accountholders with a personalized overdraft pay service based on repayment capacity. Institutions maximize service by paying/authorizing more items for those accountholders who can afford it and want to use it, while pulling back on overdraft limits for those accountholders whose ability to repay has diminished. The financial institution is able to approve more overdrafts to maximize service; incur less risk with fewer charge-offs; and save time making fewer pay/return decisions. A win-win for everyone.

Satisfy Regulator Guidelines

Regulators expect financial institutions to monitor changes in customer usage to identify risks and to detect “potential changes to repayment capacity with respect to the overdraft product.” Automated risk scoring allows your institution to monitor “the individual credit worthiness of accountholders” and customize the service to meet their ability to repay.

In addition, regulators have also stated that management “should exercise appropriate oversight through receipt and review of regular reports.” Your overdraft program should provide automated reports that track and monitor excessive overdrafts, for instance, so you can immediately make appropriate plan adjustments as well as communicate to accountholders their program status.

Do It in the Cloud

The type of automated overdraft software that is easiest to maintain is one that is cloud-based. This type of software delivery also provides security, ease-of-use and potential cost savings by eliminating software seat licenses, upgrade expenses, etc.

Benefits of a cloud-based overdraft software include:

  • Nightly updates and upgrades that occur automatically with NO impact on your financial institution’s IT staff.
  • Security back-ups, software upgrades, secure file transfers and server maintenance that no longer are your financial institution’s burden.
  • Complete compliance with multifactor authentication to meet regulatory requirements.

Automating your overdraft system helps your financial institution reap the monetary rewards of providing this much-appreciated customer service, while minimizing charge-offs and regulatory scrutiny. Your accountholders appreciate your ability to meet their short-term liquidity needs and your institution is able to make sure their limits match their ability to repay.

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Topics: Overdraft, Compliance, published articles

Is Overdraft Privilege Dead?

Posted by Jeff Harper, President, BSG Financial Group on Feb 23, 2016 5:49:35 AM

You might answer, 'Yes’ if you saw the headline, "CFPB Urges Banks to Ditch Overdraft Accounts," from an American Banker article published Feb 3, 2016.

However, if you read the entire article, you found that The Consumer Financial Protection Bureau (CFPB) director Richard Cordray was merely asking financial institutions—in a letter he sent to the nation's 25 largest retail banks—to consider providing products for consumers who cannot obtain checking services, and to "lower the bar" when it comes to screening them for those products.

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Topics: Courtesy Overdraft, Compliance, Overdraft Protection, CFPB, overdraft privilege

The Wisdom of Impatience

Posted by W. Barrett Nichols, founder & CEO on Feb 9, 2016 10:59:00 AM

So, you're waiting for the CFPB to decide about overdrafts?

And why is that?

  • Is it because you are completely confident you are operating an up-to-date and properly managed overdraft program?
  • Or perhaps you are positive your program is compliant?
  • Or maybe you have no doubt that your current program is properly serving your accountholders (whose accounts generate a large percentage of your non-interest income)?

If you cannot answer a resounding 'YES' to each of these questions, NOW is the time to ensure your overdraft program is optimized to handle to whatever the CFPB hands down. The fact is, there have been significant changes in overdraft management since most financial institutions implemented or even last reviewed their overdraft programs. Today's solutions—and providers—far exceed yesterday's options.

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Topics: Courtesy Overdraft, Compliance, overdraft assessment