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 Other institutions simply realize their programs are outdated, inefficient and need to be updated in order to provide exemplary service and generate new income.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

IH Credit Union Selects BSG Financial Group as Overdraft Management Partner

Posted by Jeff Harper, President, BSG Financial Group on Jan 30, 2018 6:35:54 AM

We are pleased to announce that Springfield, Ohio-based IH Credit Union has selected BSG Financial Group as its partner in managing its courtesy overdraft service.

According to credit union officials, IH Credit Union ($314 million in assets) selected BSG Financial Group and its CourtesyConnect®/CourtesyLimit software—displacing an incumbent third-party vendor it had engaged for 12 years—as a way to streamline overdraft management processes, while continuing to provide the same or better service that members have come to expect from the credit union.

In addition, the credit union sought to improve the methodology of setting overdraft limits in order to better meet members’ short-term liquidity needs. “We had been using a ‘one-size-fits-all’ approach to overdraft limits, but felt we should be more responsive to changes in our members’ financial situations," said Robb White, Chief Executive Officer of IH Credit Union. 

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Topics: Courtesy Overdraft, CourtesyConnect, Dynamic Overdraft Limits

Industry Leader Touts Future of Courtesy Overdraft Programs

Posted by W. Barrett Nichols, founder & CEO on Sep 13, 2017 11:27:32 AM

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.

New Call-to-actionIn 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."

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Topics: Responsible Approach, CFPB, Overdraft Compliance, Dynamic Overdraft Limits

Re-Emerging Overdraft Programs Must Focus on Service, Responsibility

Posted by Jeff Harper, President, BSG Financial Group on Aug 28, 2017 7:50:56 PM

The conversation about overdrafts has been somewhat non-existent the past several months as community banks and credit unions patiently wait for impending compliance directives, changes within the CFPB and an uptick in the economy. It seems now–with positive movement regarding all these concerns–it’s time to start talking about the opportunities overdrafts represent and the best way to seize them.

CUES recently reported that “with The Financial Choice Act likely to pass Congress, compliance on overdrafts appears headed for less restriction.” This assertion is based on the fact that part of the proposed Financial Choice Act dismantles key parts of Dodd-Frank, which created the Consumer Financial Protection Bureau (CFPB), whose role will be redefined under a new name. The act–among other improvements–“removes the board’s opaque and ill-defined unfair, deceptive, or abusive acts and Practices (UDAAP) authority,” while still emphasizing consumer protection. The bill passed in the House on June 8 and goes to the Senate next for consideration.

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Topics: Responsible Approach, CFPB, Overdraft Compliance, Dynamic Overdraft Limits

The Whole Story About Overdraft Matrix Systems

Posted by Jeff Harper, President, BSG Financial Group on Sep 26, 2016 10:58:16 AM

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. 

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Topics: Courtesy Overdraft, CFPB, Dynamic Overdraft Limits, Overdraft Matrix

Dynamic vs. fixed overdraft limits: And the winner is…?

Posted by Jeff Harper, President, BSG Financial Group on Jun 21, 2016 10:25:07 AM

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.

The Contender:
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).

The Challenger:
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.

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Topics: Overdraft Compliance, Overdraft Management, Dynamic Overdraft Limits

Equality in Overdraft Management

Posted by W. Barrett Nichols, founder & CEO on Jan 19, 2016 9:00:00 AM

We can think of no better day than Martin Luther King, Jr. Day to reflect on equality. And while many people this week ponder equality in terms of race, religion or even sexual orientation, we think it also applies to the banking world—specifically to equality in overdraft management.

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Topics: Overdraft, Compliance, Responsible Approach, Dynamic Overdraft Limits

Migrating from Fixed to Dynamic Overdraft Limits is a "Non-Event" for Accountholders

Posted by Michele Rehm, Marketing Manager on Dec 10, 2015 1:13:42 PM
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Topics: Overdraft, Fixed Overdraft Limits, Dynamic Overdraft Limits

Modern overdraft services can solve the challenges of NSF debit denials

Posted by Hank Thompson, Executive Vice President on Jul 21, 2015 1:46:00 PM

A large portion of the growing erosion of OD/NSF Fee revenue at financial institutions (FI) can be traced to attempted debit card transactions denied at point of sale or at an ATM due to “reasons of NSF.” Referred to as “NSF Debit Denials,” these attempted transactions do not post to the core system, do not create an NSF Fee, and disappoint (or even embarrass) customers simply trying to use their debit card. As the migration from checks to debit cards has accelerated, NSF Debit Denials have become an increasing problem for financial institutions, impacting interchange income and customer loyalty.

How many customers, upon suffering an NSF Debit Denial, will stop trying to use their debit card and opt instead for alternative cards? How many even understand, or take the time to figure out, why they were denied in the first place, rather than just blaming it on their bank or credit union? The rise in NSF Debit Denials creates many challenges for any FI.

An NSF Debit Denial is caused by one of two situations in any customer’s account:
1.     The customer has not opted in to Reg. E, which covers one-time point of sale and ATM transactions.
2.     Even if opted in, the desired transaction may put the account over its overdraft limit.

Modern, “second generation” overdraft services offer solutions for both obstacles.

When the amendment to Reg. E became effective in July 2010, many FIs approached customers for their decision to Opt In or Opt Out of extending overdraft service for one-time POS and ATM transactions. Since 2010, many FIs have tried to place emphasis on Reg. E during Account Opening. Results have varied widely, but each account falls into one of three ‘buckets’: Opted In / Opted Out / No Decision (No Response). Do you know the share of personal accounts within each bucket at your institution?

At many FIs the third bucket exceeds 50% of the accounts! And this No Decision bucket represents huge opportunity for better customer service and increased fee revenue. A good overdraft management system will match NSF Debit Denials to the account, isolate the No Decision accounts, apply customized qualifying criteria, and create a list of customers for contact to explain what happened with their debit denial, while also asking for a decision on Reg. E -- all automatically. Institutions that have committed to contacting these very qualified customers have gained appreciation from customers and begun to replace vanishing revenue from NSF Fees.

Dynamic Limits
But what if the account has opted in to Reg. E and still suffers an NSF Debit Denial? This happens often at FIs still using Fixed Overdraft Limits in which “one size fits all.” The opted-in account runs up against its fixed limit and is denied. Establishing “Dynamic Overdraft Limits,” in which each account gets an overdraft limit that is proper for that account’s activity and the account holders “ability to repay” (as determined by each institution), expands limits for those that have the ability to repay and pulls back on limits for accounts where it appears the account holder may not have the ability to repay. 

It should not surprise anyone that accounts with above average overdraft items, and that are opted in to Reg. E, often qualify for higher overdraft limits, since those accounts usually have more frequent and larger deposits than average accounts. These are convenience driven customers and are the very customers who are willing to pay (and can afford) the service. These customers benefit from the better service afforded by Dynamic Overdraft Limits, while the institution realizes more Overdraft revenue.

Dynamic Limits also address the directives from regulators to monitor the “credit worthiness” of accountholders and be able to adjust participation in an overdraft service when needed. Fixed Limit programs normally practice a “set it and forget it” modality in which accounts are qualified in the program and all get the same overdraft limit. The accountholder’s “ability to repay” is never reviewed, until the account is 30 days overdrawn and steps away from charge off. The vast majority of personal checking accounts in the USA (think Bank of America, Wells Fargo, etc.) have had Dynamic Limits for decades. It is only recently that the technology and systems became affordable for community based financial institutions.

Today a responsible institution can access technology, best practices and experience to combat the growing customer service, compliance and revenue issues caused by the growth of NSF Debit Denials. 

The next generation of automated overdraft management systems has arrived.

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Topics: Debit Denials, Dynamic Overdraft Limits