Top 10 Overdraft Program Questions

Strunk offers overdraft privilege training to our clients to provide consistency on how the employees view the program and how the employees present the program to their consumers.  When providing training we will sometimes get questions on how to handle specific areas of the program. Here are the 10 most frequently asked questions during overdraft privilege training and the response to those questions.

1. Does a consumer have to opt in to have overdraft privilege on their account?

No, a consumer does not have to opt in to have the “standard overdraft practice” on their account.  The “standard overdraft practice” pay overdrafts for Checks, In-person withdrawals, ACH transactions, Pre-authorized automatic transfers, Automatic bill payments, Recurring debit card transactions, Internet banking transfers and telephone banking transactions.  A consumer only has to opt in to have their Everyday debit card transactions and their ATM transactions cover under the overdraft privilege program.

2. When does a financial institution have to take a consumer out of the overdraft privilege program for Excessive Use?

Never, financial institutions should never take a consumer out of the overdraft privilege program because they use it.  The key is not whether the account has had a lot of overdrafts, but rather, whether the account holder has made deposits sufficient to cover the overdrafts in a timely manner.

3. Does a consumer have to sign the Reg. E opt in form to have their debit card point of sale transactions and their ATM transactions covered?

No, a consumer only has to consent to have their debit card point of sale tractions and their ATM transactions covered under the overdraft privilege program.  The regulation provides for four methods to obtain an opt-in (consent): 1) by completing the form, 2) in person, 3) over the phone, and 4) electronically.  The financial institution should make the best possible use of all of these methods.

4. How can the financial institution differentiate between a recurring debit card transaction and a nonrecurring one?

Financial Institution must comply with the Reg. E rule if it adapts its system to identify debit card transactions as either onetime or recurring.  If it does so, the financial institution may rely on the transaction’s coding by merchants, other institutions, and other third parties as a one-time or preauthorized or recurring debit card transaction.

5. Do business accounts have to opt into Reg. E?

No, Reg. E is a consumer regulation.  Business accounts do not have to opt in to have their debit card or ATM transactions covered under the overdraft privilege program.

6. Does the Overdraft Privilege Joint guidance address the order in which charges are posted?

No, the Federal Register continues to assess whether additional regulatory action relating to overdraft services is needed, but nothing yet.

7. Do both parties have to opt into Reg. E on joint accounts?

If two or more consumers jointly hold an account, the financial institution must treat the affirmative consent of any of the joint consumers as affirmative consent for the account.  Similarly, the financial institution must treat a revocation of affirmative consent by any of the joint consumers as revocation of consent for that account.

8. Once a consumer pays back their Fresh Start Loan, can that consumer have their overdraft limit back?

Yes, once the consumers Fresh Start Loan is paid back in full and their account is in ‘good standings’, then their overdraft limit should be added back to their account.

 9. Can a consumer have more than 4 payments on their Fresh Start Loan?

No, a consumer can only have 4 monthly payments on their Fresh Start Loan. To qualify as incidental credit under Reg. B (for Reg. Z not to apply) and to avoid limitations under The Military Lending Act, the number of payments must be limited to 4 and no interest or fees are charged on the loan.

 10. Once an account is no longer suspended, when should that consumer get their overdraft limit back on their account?

Once a consumer account is in ‘good standing’ then that consumer should have an overdraft limit on their account.

Replace Manual ODP Letter Processes with Ad Hoc Letters

ODP Manager uses the information from the daily extract file to create Collection letters to send to overdrawn accounts. The hosted software also generates Custom letters, for example, Welcome or Reinstatement letters, or letters confirming a Reg E Opt-In election.

In addition to Collection letters and Custom letters, ODP Manager also offers Ad Hoc letters. This letter type allows the flexibility to generate letters on an as-needed basis. If you close and charge off an account before the standard number of days overdrawn, you will need to be able to generate an Account Closed letter. Or you may have ODP related letters that you send in specific situations other than those covered by the standard letter templates. You can even use Ad Hoc letters to generate your Fresh Start Loan agreements. Rather than creating letters manually, you can have them set up as Ad Hoc letter templates in the ODP Manager software.

Ad Hoc letters don’t require specific account events as a trigger. When you need to generate the letter, just enter the account number and the letter will prefill with the information from the software. The letters will automatically populate with the customer name and address from the extract file. Other fields from the file can also be included. Letters can be generated one account at a time, or multiple account numbers at once. By replacing your manual ODP Letter processes with Ad Hoc letter templates, you may save time and you will also benefit from the letter tracking and retention in ODP Manager.

Please contact Strunk Support at support@strunkaccess.com with any questions or for more details.

High Growth Installment Lending Solution

For the past 40 years banks have made it difficult for their customers to get a small dollar installment loan due to the unprofitable nature of doing so. Credit card company business has flourished since the late 1970’s and bankers have been left on the sidelines.

The old (and current) way of making consumer loans is expensive and tedious and bank core processors have been slow to develop lending solutions that make these small dollar loans easy to book and profitable at the same time. Some banks allow consumers to apply online but many still require their customers to fill out an application in person.

Historically, bankers confirm the information on the application, pull a credit bureau report, and underwrite the loan. If the customer still wants to borrow, loan documents are produced and signed, repayment source and schedule is prepared, and the new loan is funded on the bank’s lending platform.

For loans of less than $1,000 most bankers cringe at the thought of doing all of this work for the amount of interest they will earn. Some banks turn these customers away. Furthermore, the cost to put the installment loan on their core processor’s lending platform eats up most of the interest the bank would receive.

Quilo takes all of the hassle out of making these loans and it allows the consumer to have instant access to credit based on their borrowing capacity. The new way of lending is digital (smart phone) and it provides easy access to loans based on the bank’s underwriting criteria. Digital banking has been around on the deposit side for several years. Now you can offer digital banking on the lending side as well.

To see what you are missing out on contact Mike Sobba, President of Strunk at msobba@strunklp.com or 816-225-8793 for a 45 minute demo.

ODP Manager Management Reporting Suite

The hosted ODP Manager software includes a comprehensive and robust suite of key reports.  Daily users and management can both leverage these reports to ensure strong program performance and compliance.

Daily reports are used to review the addition and removal of overdraft limits on individual accounts. Account level detail is listed on the New Accounts and Overdraft Aging reports.

Monthly reports are focused on performance analysis and adequate reserves.

Use the Summary Report to monitor trends in your NSF and OD Fees and Refunds. Overdraft Detail reporting helps you assess the appropriate reserve for your overdrawn accounts. Utilization Analysis and Opt-In Impact reports allow you to monitor the percent of accounts with an overdraft limit and the percent of accounts opted in for Regulation E. This is very important for maintaining or improving your ODP program’s performance.

Quarterly/As Needed reports are used for less frequent reviews. Review accounts that did not qualify in prior reviews but now may meet your qualifying criteria using the Status Tracking and Heavy OD User reports. Additional reports allow you to review all your accounts with Fresh Start Loans or review the overall volume of letters that are generated in ODP Manager.

Your institution’s reports can be viewed and filtered on screen or exported and saved as Excel or PDF files. In addition to data from your most recent extract file, you are also able to access reports from your most recent seven As of Dates. If you reference past reports for additional analysis, Strunk can set up your reports to be automatically archived after each import.

Please contact Strunk Support at support@strunkaccess.com with any questions or for more details.

New Due Diligence Guidance for Community Bank on FinTech Firms

On August 27, 2021, the Board of Governors of the Federal Reserve, FDIC, and the OCC published new guidance aimed at community banks that are looking to expand their reach and service new customer bases through partnerships with financial technology companies (FinTech). While aimed at community banks, the regulators said the fundamental concepts could also be adopted by other kinds of banks and for other kinds of outsourcing partnerships. The regulators stated that the guidance was recommended but not mandatory and emphasized that it did not cover all types of third-party relationships.

The guide sets out six nonexclusive areas of due diligence that community banks should consider when engaging with FinTechs. The six key due diligence topics are: business experience and qualification, the companies’ financial condition, legal and regulatory compliance issues, risk management and control process, information security, and operational resilience.  The guide then provides direction on potential sources of information under each of the six steps and includes illustrative examples.

Business Experience and Qualifications

  • Business experience
  • Business strategies and plans
  • Qualifications and backgrounds of directors and company principals

Financial Condition

  • Financial analysis and funding
  • Market information

Legal and Regulatory Compliance

  • Legal
  • Regulatory Compliance

Risk Management and Controls

  • Risk management and control process

Information Security

  • Information security program
  • Information systems

Operational Resilience

  • Business continuity planning and incident response
  • Service level agreements
  • Reliance on subcontractors

Given the regulators’ recent and recurring emphasis on vendor management, the board of directors and senior management of all banking organizations should consider whether their vendor management policies and procedures comply with the Proposed Guidance and include the areas addressed in the Guide when engaging FinTechs.

Quilo Gives Banks a Chance

Strunk has recently partnered with Quilo to provide community banks the opportunity to make small dollar installment loans profitably through your mobile banking app. The Buy Now Pay Later (BNPL) craze is here to stay and you may have recently seen where Amazon has teamed up with Affirm to provide this service. Are you going to let your customers borrow money from a FinTech?

Quilo is a fully integrated mobile banking solution that allows your customers to make purchases over $250 and pay for them over a time frame comfortable for them. What’s even better is your bank gets to make the loans profitably through our digital lending program.

Your customers can get pre approved so they know how much credit they have; they can use it a point of sale or for online purchases; they can use it to replenish their checking account at your bank for recent debit card purchases; and they can pay down or pay off other bank’s credit cards. Credit risk is completely controlled by you.

Underwriting, funding, collections and reporting is all handled inside the Quilo app. Once the program is set up it takes about 1.2 seconds for your customer to determine what they are eligible for. Each transaction is time stamped to ensure that your customer took the loan. All disclosures including adverse action are handled by Quilo.

Many bankers will remember the old lay-a-way programs that consumers use to enjoy in the 1970’s and 80’s. Quilo allows your customer to take home the goods and you make the loan.

To see what you are missing out on contact Strunk at info@strunkaccess.com or 800.728.3116 for a 45 minute demo.

What is a Fourth Party Vendor and Why Should I Care About Their Risk

Fourth-party risk is rising to the top of most auditors and examiners list when it comes to evaluating financial institutions vendor management program.  Fourth parties are your vendor’s third parties and subcontractors.  These vendors you will not have a direct contract; however, your vendor does, and relies on these vendors to produce a product or service for them.  Most of the time these vendors will be visible in your vendor’s SOC reports and should also be easily identified by your vendor as those classified as critical in their own vendor management program.

Financial Institutions should care about fourth-party vendors risk, because they are subject to the same risk as your vendors, which puts you at the same risk without having the same oversight that you have over your own vendors. Financial institutions are ultimately responsible for the protection of their customers data, sometimes a fourth-party vendor can expose the financial institution to reputational, operational or cybersecurity risk.  All it takes is a single opening for a threat to compromise protected information.  Like any risk, there can be serious business implications, from fines to legal issues which can negatively affect a business if the fourth-party risk is unchecked.

The most effective way to manage fourth-party risk is to build a mature, comprehensive vendor risk management program.  If you have the right practices and processes in place, then incorporating fourth parties into those processes should feel manageable and mostly seamless.  Your vendor management program should help you identify your most critical vendors.  Once you do that you can ask them who their vendors are; what products and services do they provide to the vendor that cause them to be classified as critical to their operations; and what due diligence on the fourth-party vendor has your vendor perform on them.

Customize Your ODP Manager Letter Templates

Templates for all your necessary Collection and Custom letters are included with Strunk’s hosted ODP Manager software. We’ve provided the letter content for you but there are customizable letter template options to allow your letter appearance to be consistent with other letters sent by your institution.

Do you have a standard letterhead that is used for your customer communications? ODP Manager can save your header and footer information so you can print your letters on plain paper instead of letterhead.

Do you typically sign your letters? ODP Manager allows the flexibility to store signatures for each of your ODP Manager users. No more signing letters – the signature can print with your letter! A signature can be used for all letters, or the signature can change based on the user generating the letters.

Do your customers contact a central location to discuss the ODP Program information or do they contact their local branch? With the hosted software, letters can include a single contact number, or the included phone number can change based on the account’s branch. ODP Manager can even change contact names based on the account’s branch.

Take advantage of hosted ODP Manager’s flexibility to create letter templates specific to your institution. Please contact Strunk Support at support@strunkaccess.com with any questions or for more details.

Is your Financial Institution Ready for Digital Lending?

Digital banking has been around for about a decade as community banks and credit unions scrambled to offer consumers something big banks started in 2007. Mobile banking really started in Europe in the late 1990s and it took over ten years for it to become popular in the United States.

Mobile banking gives consumers 24/7 access to their deposit account. Most mobile apps allow for bill payments, remote deposits, fund transfers and some even allow person to person payments. Mobile apps have not provided any type of service on the lending side of the house until now.

The buy now pay over time solutions that many consumers are using started in Europe several years ago and in the past year they have become popular in the U.S. Just like mobile banking, the financial institutions here have lagged behind the rest of the world when it comes to digital technology solutions for consumers.

The Quilo mobile app provides instant access to small dollar (over $250) consumer loans that can be used at 1) POS or for online purchases; 2) to pay down or pay off credit card debt; or 3) to replenish a checking account for recent debit card transactions. The loans follow strict credit underwriting by each institution. Funding, collections and reporting is handled by the Quilo app.

Strunk has partnered with Quilo to provide a turn-key solution that will meet consumer demands by providing small dollar lending profitably. Quilo will substantially increase loans, net interest margin and interest income.

For a quick demo of Quilo contact Strunk at info@strunkaccess.com or 800.728.3116.

The Prospect of Eliminating Overdraft Fees

Ally Bank has recently made headlines announcing that it would no longer charge its customers overdraft fees. Ally is a popular online bank that offers one type of checking account and overdraft fees only accounted for less than .07% of Ally’s revenue in 2020.  Ally Bank typically excludes consumers that use overdraft protection to begin with; of their 2.5 million banking clients, only about 1% have been subject to overdraft charges in the past.

When a financial institution decides to eliminate overdraft protection to their account holders, how does that really affect the consumer? First, if the account holder writes a check for more than they have in their checking account then that check gets declined (the check bounces) and sent back to the payee who tried to cash the check.  Once the check is returned, the account holder is charged an NSF fee and most likely charged a return fee from the payee or the merchant.  After a check is returned, the payee or merchant might try to re-deposit/re-present the check to see if the customer has the funds available.  If the account holder does not have the funds available then they are charged another fee.  Without overdraft protection these types of transactions can be very expensive because the consumer will have to pay an NSF fee, return fee and most likely re-presentment fee as well.  Also, the account holder will be inconvenienced because the check did not clear, meaning the payee has still not been paid.  Ultimately, the consumer will have to deal with the embarrassment of having their item returned.  Secondly, if an account holder doesn’t have overdraft protection on their account then that account holder is not allowed to have their debit card covered under an overdraft program.  Most consumers enjoy the convenience of having their debit card approved for a transaction that may overdraw their account rather than having those transactions declined.

After reviewing banks that are offering no overdraft fees accounts, Strunk has found that most of these banks are just setting up automatic transfer from another account or a line of credit to cover the overdraft items.  Also, if a bank is offering no overdraft fees there are some restrictions you may need to consider on the account.  Some of the restrictions to the account could be that the account doesn’t offer checks.  The bank may impose higher minimum balances or direct deposit requirements to reduce the occurrence of a transaction being declined, and if the account holder does not have the required daily balance or required monthly deposit amount then there is usually a monthly maintenance fee on the account. Strunk recommends that your organization consider all of these situations when evaluating an account type without overdraft protection.