Earlier this year, the Consumer Financial Protection Bureau (CFPB) announced it would push back its rulemaking process tied to overdrafts from July to October. But October has come and gone, and so the wait continues…
In fact, it is widely believed that even if the CFPB had made decisions in October, an effective date on rule-making would be no earlier than mid-2017. So not only does the waiting continue… it could go on for more than a year!
Many Americans who cannot cover regular or emergency expenditures are also finding it harder to obtain traditional forms of credit to tackle unexpected expenses, such as an emergency car repair or medical need. But rather
than ease this burden, the Consumer Financial Protection Bureau is proposing to take away viable short-term funding options.
Read the entire article on the American Banker website.
Download our Consumer Choice Overdraft Study Infographic.
BSG Financial Group recently participated in an informative webinar sponsored by the American Bankers Association, called “Avoiding ‘OOPS!’ in Your Overdraft Protection Program.” As the title implies, the focus was on compliance and mitigating risk as it relates to managing a discretionary overdraft program. The program provided tips on how to successfully offer consumers a cost-effective service without encouraging reckless behavior by actively managing the legal, compliance, operations and reputation risk that accompanies overdraft protection (ODP) programs today.
The webinar offered many sound suggestions with regard to ad hoc decision-making, lines of credit, etc., but we found the section that related to third-party arrangements especially valuable. According to the presenter, Patti J. Blenden, CRCM, CPA, President, Financial Solutions for Growing Companies, Inc., overdraft programs managed by third-party providers have the potential to raise concerns that differ from in-house ODP solutions.
We often refer to our 'Responsible Approach™' in the management of account holder overdrafts. Let us explain...
BSG Financial Group built our overdraft software CourtesyConnect®/CourtesyLimit™ (CC/CL) with an emphasis on financial institution and account holder protective practices. This "Responsible Approach™" to overdraft management allows your financial institution to offer overdraft protection in a compliant and customer-friendly way.
CourtesyConnect®/CourtesyLimit™ is a program that was truly built by a banker for bankers. The software incorporates a CRM platform to help your institution provide higher levels of communication to account holders while assisting them in managing their short-term liquidity needs. It's not often a solution comes along that can have such an enormous effect on increasing account holder satisfaction, while also generating income for your institution.
The caveat: This program must be managed responsibly.
Dynamic Overdraft Limits. With CourtesyConnect®/CourtesyLimit™ financial institutions can offer an overdraft service in a consistent and fair manner, in complete alignment with all federal regulatory guidelines. For instance, in addition to counseling financial institutions on successfully obtaining Reg E opt-ins, the program offers dynamic overdraft limits for each account holder based on account algorithms, analyzing the person’s ability to repay the overdraft. This feature directly addresses the FFIEC 2005 directive that states, “Institutions also should monitor these accounts on an ongoing basis and be able to identify consumers who may represent an undue credit risk to the institution….” It is a safeguard that continually and automatically assesses risk.
I recently saw that Strunk, LLC announced it had launched a hosted overdraft solution. The press release explained the benefits of hosted solutions, stating that financial institution clients no longer would have to worry about installing, upgrading or supporting its overdraft management system. This truly is wonderful, as it clearly is a superior method of delivery. Realizing that today’s competitive marketplace and tougher regulatory environment requires a more robust solution, this is a giant step forward.
As I thought of all the benefits a hosted solution has to offer, I realized it has been almost 10 years since BSG Financial Group introduced its cloud-based overdraft management program, CourtesyConnect/CourtesyLimit™. And what a difference it made for our bank and credit union clients: implementations became much easier; upgrades a no-brainer; and our clients no longer shouldered the burden of technical support.
When I think about the evolution of CourtesyConnect®/CourtesyLimit™, I remember that it was a simple, logical progression, having been a long-time provider of the robust overdraft software solution, OverdraftHonor®. We were pioneers when we introduced that software in the 1990s, when many overdraft management providers preached that overdraft software was not necessary or they offered only rudimentary solutions. Our OverdraftHonor® quickly became the “Gold Standard” in the industry, providing unparalleled profitability, guided by our “Responsible Approach” to account holder management and compliance.
So it was in 2005--when other providers seemed to be hunkered down, believing the industry was very mature and showing little if any growth--that we actually invested more in our solution.
Why did we do it? Because it was the right thing to do for our clients. As better tools and ideas have become available, BSG Financial Group has always provided them to its clients. Now enjoying our Fourth Generation of an overdraft management system, we look forward to continuing our leadership position.
Just think, a lot happens in 10 years. Ten years ago you were probably renting DVDs at Blockbuster; wanting a flip-phone and actively managing the amount of cell minutes you used. You may have just tried the Atkins diet; heard the word "metrosexual" for the first time; watched Janet Jackson's wardrobe malfunction; or just seen Barack Obama on TV for the first time. Yes, a lot changes over 10 years.
I'm truly happy and feel extremely proud that BSG Financial Group has always been an early adopter, helping our clients take advantage of new innovations in the marketplace. I love that we were the first provider in the industry to offer a cloud-based overdraft system. It's always nice to be a leader.
Speaking of which, are you taking advantage of all our current enhancements, while enjoying what we pride ourselves on, the "Responsible Approach"? In addition to providing dynamic overdraft limits that protect both you and your account holders, our debit card-focused (ATM/point-of-sale) overdraft management program is designed to help your institution and your account holders get the level of service they desire. This strategy continues to grow in importance, as consumers’ preferred method of payment continues to change to electronic. If you're not sure of what I'm talking about or have interest in learning more, just reach out to BSG Financial Group. We'll be glad to make sure you get what you need.
We offer a FREE OVERDRAFT PROGRAM ANALYSIS whether you currently have a program or not. After you fill out the simple online form, we can let you know the most compliant and profitable way to offer this service to your customers, or introduce strategies to enhance the program you already have.
In last week’s article entitled, “Falling overdraft takes a bite out of banks’ bottom line," PYMNTS.com cited a report by Moebs Services, Inc., an economic-research firm in Lake Forest, Ill, that stated financial institutions garnered around $30.6 billion in overdraft fees this year, down 4% from 2014--the biggest decline since 2011. The article quoted PNC Financial Services Group Inc. Chief Executive William Demchak who spoke at a May conference, where he apparently said, “At the end of the day, these people are our customers and we’re treating them with a got-you product.”
Since I wasn’t at the conference and I haven’t spoken directly with Mr. Demchak, I don’t want to attempt to explain what he meant. However, his words sound strikingly similar to those of so many uninformed consumer activists who suggest that consumers are best served when a financial institution returns insufficient funds (NSF) checks in lieu of paying them.
Unfortunately, this contingency doesn’t seem to completely understand the entire payment transaction. They tend to overlook the fact that regardless of whether a financial institution pays or returns a bounced check, there is going to be an NSF fee. If the consumer is going to pay its financial institution roughly $30.00 in excess of the check’s collected balance anyway, why would the consumer also want to pay the payee, who will likely charge an additional returned check fee? In general, consumers appreciate having their financial institution honor their checks even when they do not have sufficient funds, so that they pay only one NSF fee.
So, it’s a ‘got-you product’? On the contrary, it is a service that most consumers appreciate, often thanking their institution for honoring the check. Not only does paying the NSF item eliminate the additional returned check fee for the consumer, it also reduces the embarrassment and headaches returned checks can cause the maker.
So you ask, ‘Why then are overdraft fees falling at banks? Isn’t this evidence that fewer consumers want the service?’ Possibly, but not necessarily so.
Let’s look at several of the causes. First, there are a number of banks that have altered or discontinued their overdraft service, creating a reduction in overdraft income. Secondly, with the popularity of smart phones and internet banking, consumers can easily keep track of their account balances. However, the most significant driver is the continuing shift from checks to other forms of payment by consumers. Today, checks account for only approximately 23% of transactional items, a drastic reduction from past years and one that continues to gain momentum.
I would propose that overdrafts are NOT a ‘got-you’ product, but a much appreciated and enjoyed service that is often available for short-term liquidity needs. And with the rise in electronic forms of payment, customer-focused financial institutions should consider offering overdraft privileges not only for paper items, but on electronic transactions too. First, however, they need to identify 1) which customers use payments other than checks; 2) if they are currently eligible for overdraft coverage due to Reg E.; and if not, 3) why they are not eligible (i.e., lack of response or opt-out). When asked, customers will generally tell you they did not respond to opt-in efforts by the financial institution because they never saw the mailing or they did not understand it.
Here is your financial institution’s opportunity to distinguish yourself by offering superior customer service. Simply change with the times. If your customers prefer utilizing ATM or debit cards, provide them the same overdraft coverage you provide on their checks. All you need to do is find a service provider that provides an up-to-date, compliant overdraft solution with a proven debit denial program.
I call that turning a “got you” product into a “help-you” product.