The Importance of Understanding your Reg. E Opt-In Form

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In 2010 there were changes to the laws and regulations for financial institutions regarding overdraft privilege programs.  Certain Regulation E rules took effect July 1, 2010.  Under these rules, financial institutions must provide notice and reasonable opportunity for customers to opt-in to the payment of automated teller machine (ATM) and one-time point-of-sale (POS) overdrafts provided in exchange for a fee.

Even though this regulation is over 10 years old, there are still misunderstandings from financial institutions regarding the way to present the Reg. E options to consumers, and also the way financial institutions should disclose to their consumers.  Not disclosing Reg. E opt-in correctly to your customers/members could be costly to your institution and also hurt the institutions reputation.  Recently a Bank was hit with $122 million in restitution and penalties to resolve claims that it charged U.S. consumers fees without consent.  The CFPB stated that in some cases the bank required new customers to sign its overdraft notice with the ‘enrolled’ option pre-checked without mentioning the Reg. E service to the consumer.  In other cases the CFPB found that new customers were enrolled in Reg. E without requesting the customer’s oral enrollment decision.

Reg. E opt-in disclosures are highly sensitive matters with regulators and strict compliance is required.  Strunk is the leader in overdraft privilege services and we have a great understanding on how to establish and implement policies and procedures that align with the laws and regulations around Reg. E opt-in. If you have any questions regarding your disclosures or your procedures, reach out to Strunk so we can assist you.

Educating Your Customers and Your Employees

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I was recently at a bank and asked the CEO when was the last time you told your customers about a consumer program that they had put in place in seventeen years ago. His answer was seventeen years ago. The same bank had a sign outside and it said “Loan Sale” and I asked him who he was selling his loans to?

During the recent pandemic many bankers are looking at ways to increase fee income even though mortgage origination and PPP loan fees have been through the roof. Telling consumers about the services offered by the bank is one way to generate fee income. Many banks “advertise” their services on a fee schedule and the benefits of the services are nowhere to be found. Ensuring that consumers know about the benefits of the services you offer are paramount to obtaining the level of non-interest income that high performing banks enjoy.

The same CEO answered my question about the last time the employees of the bank had been trained on the same consumer program…17 years ago! So, for the same reason as educating your customers on the benefits of a consumer product your employees need frequent training as well. Not all, but many, banks see a high turnover at the new accounts desk. Generally, the brief training that a new employee gets doesn’t go nearly as far as it needs to in order to increase the cross sale of fee income products and services.

Take a look at each service that you offer to consumers and ask yourself, “When was the last time we marketed the program (educating customers) and when is the last time you trained (educated) your employees on the features and benefits of the service?” Doing so will enhance your ability to generate additional fee income for your bank.

Create Letters On Demand with ODP Manager Ad Hoc Templates

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ODP Manager allows you to easily generate your organization’s Collection or Custom letters based on specific criteria that is updated by importing your core extract file each day. There are situations where these criteria may not always be sufficient for each and every letter that you need to send.

What should you do if there is a letter that you want to send that doesn’t meet your existing letter criteria? Have you ever needed to send an Account Close letter to close an account before your standard number of days overdrawn? Do you have other ODP related letters that you’ve been sending manually?

Strunk Support can configure Ad Hoc letters within ODP Manager for your institution. This flexibility lets you send the letter as needed – it doesn’t rely on an account event to trigger it. When you need to generate the letter on demand, simply enter the account number and the letter will prefill with the information from the software, just as it would in a standard template. Once it is generated, ODP Manager tracks and retains the letter just like your Collection and Custom letter templates.

Please contact Strunk Support at support@strunkaccess.com to make the most of your ODP Manager solution and learn more about implementing or using this feature.

Reviewing your overdraft privilege program during a pandemic

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With the Covid-19 pandemic having an enormous effect on a financial institution’s overdraft privilege program, this is a great time to review your existing program to make sure it is running as efficiently as possible.  Financial institutions pointed to government relief efforts, increase in unemployment benefits and the decrease in discretionary purchases that had a negative impact on overdraft privilege programs.  Even with these obstacles in our way there are still ways to make sure financial institutions maximize their fee income from their ODP program.

  1. Clean up accounts to prevent creep-age.  We find that most financial institutions, over time, experience a downward trend in percent utilization, which has a significant negative impact on fee income. By using reports that are produced in Strunk’s ODP Manager software, financial institutions will be able to gain a great understanding on how each account is performing.
  2. Evaluate your institution’s Reg. E opt in rate. The Federal Reserve Payments Study shows that roughly two-third of all transactions are done by debit card. Making sure customers understand what opt-in means for them and what happens if they don’t opt in is essential.
  3. Review how overdraft waives/refunds are being handled inside your financial institution. Waives/refunds are an area with two issues: Reduction in income fee and possible compliance issues.

There is no better time to do a complete review of your overdraft privilege program than during the Covid-19 pandemic.  Strunk can perform a checkup on your program to help with compliance and profitability while also training your employees to ensure consistency within the program.

Overdraft fees have plunged 49% due to COVID-19 pandemic

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At Strunk, we have been focused on assisting clients with an unprecedented struggle these past few months due to the current COVID-19 pandemic. Overwhelmingly, the second quarter has been a very difficult time for overdraft/NSF fee income. According to a recent study published by S&P Global Market Intelligence overdraft/NSF income is down 49% industry-wide in Q2 2020.

Further, the study goes on to explain some of the reasons behind the significant downtown. As we have expected, drop in consumer spending and liquidity created by government stimulus money are the largest contributors. Many financial institutions have also reported significant fee waivers in an effort to help account holders impacted by COVID-19.

Dan Roderick, CEO at Strunk said, ‘what happens from here is difficult to forecast given the unprecedented nature of the cause of this particular economic downturn’. Most analysts and bankers say they do expect a rebound in consumer spending behavior in the third quarter as the economy continues to reopen. However, it is expected that the deposit fee line item will remain below historical trends. One thing we can be sure of is that times have changed, and we are in uncharted territory.

We are all aware that overdraft programs are consistently a hot topic amongst regulators and at Strunk, we’ll make sure your program is fully compliant, even during an economic situation like we are experiencing. Compliance is more important than ever and we are here to help. If you have questions regarding your current program please do not hesitate to contact us at info@strunkaccess.com.

Customized Reporting Options in ODP Manager

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Strunk’s ODP Manager includes a comprehensive suite of reports designed to help you monitor your ODP program. Reports are available in Excel or PDF format or can be viewed on screen. For each report you can apply individual data filters and export the filtered results.

PDFs of selected reports can be retained within the hosted software using the Archive Reports feature. After each import a copy of the specified report is saved within ODP Manager.

Your standard reports and Account Inquiry groups are configured based on Strunk’s standard recommendations. What are your options to customize your information?

Segment which information is displayed further by utilizing Query Groups. These client-specific groups limit your results to accounts that only meet your desired criteria. They can be added to an existing report or they can be used in Account Inquiry.

If you need more control over which data fields are displayed, you can use Custom Queries. They allow ODP Manager to specify not only which accounts are included but also the data columns that are displayed. If there is an institution-specific report that you will generate on a regular basis, a Custom Query may be your solution.

Please contact Strunk Support at support@strunkaccess.com to find out more about implementing or maximizing the usage of these features.

Clarification on how to handle “Force Pay” items in an ODP program

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Financial Institutions encode items with a special transaction code to ensure payments are received before other items clear an account. The codes are used for a variety of reasons. As long as you make a deposit or have enough money in your account to cover the transaction, you don’t have to take further action.  A “force pay” debit is a special transaction code used by the financial institution to insure that a debit purchase clears an account first. An example of a “force pay” debit card transaction is if a consumer is at the gas pump and that consumer has $5 in their checking account.  Once the consumer swipes their debit card at the gas pump the merchant receives an authorization for $1.  The consumer then puts $50 worth of gas in their vehicle.  In this scenario the debit card transaction is paid and the financial institution is not allowed to return items to the merchant that are presented for payment.

How should financial institutions handle these transactions to make sure that they are in compliant with all regulatory requirements.  “Force Pay” debit card or ATM items that overdraw an account cannot be charged an overdraft fee if the account does not have an overdraft limit and the consumer has not “opted in” for Regulation E purposes.  Strunk met with David Stein, co-author of Regulation E, at the CFPB and he clarified for us that institutions should not be charging fees on consumer accounts if the bank would not normally authorize the electronic transaction. These are referred to as “no pay” accounts in CFPB terms. If a new customer checking account is in the waiting period before a limit is assigned, or if an accountholder’s limit has been taken away for some reason, you cannot charge an overdraft fee for these force-pay caused overdrafts, even if that customer has “opted in”. The basis for this position is to address any potential Unfair, Deceptive and Abusive Acts and Practices (UDAAP) application if a customer has no potential to receive benefit from your overdraft program.

Check-less or Cashless Society?

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Thirty years ago bankers were concerned that they might soon face a check-less society where most all debit transactions were no longer paper items. This was caused by the proliferation of debit and ATM cards that hit our industry. In the late 1980’s and early 1990’s banks saw Pony Express couriers pick up “cash letters” each afternoon and take them to the Federal Reserve or a correspondent bank for processing of the paper checks. Twenty years ago this practice slowed as the Fed allowed for electronic presentment of paper items deposited. In a recent report from the Federal Reserve less than 9% of all debits are paper…so we are getting close to a check-less society.

Now with the virus crisis our industry is seeing a shortage of coins from retailers across our communities. Some businesses are requiring exact change or debit card payments for the goods and services they sell. Also, with the substantial increase in purchases being made online, debit card or electronic transactions have grown significantly. There are other methods of payment such as Venmo, PayPal, and Apple Pay that reduce the need for consumers to carry cash. The question is “Are we getting closer to a cashless society as well?” This phenomenon has been exacerbated by trying to reduce the spread of the virus by not touching “anything”, including cash.

Banks have sought to help consumers take home the prescription drug or groceries from the store when they don’t have sufficient funds in their account. With debit card usage at an all time high, getting consumers to opt-in for electronic transactions is even more important. Letting consumers know they have a choice on how they want their account handled is good business. With paper checks and cash being used less, now is the time to review your overdraft payment process for debit card transactions.

Is Your Overdraft Program Meeting the Needs of Your Account Holders?

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Strunk’s Overdraft Privilege program has helped financial institutions streamline the daily overdraft payment process for the past 27 years. Consumers would much rather have you pay an item into overdraft status than return it to the merchant…which only causes them grief. For debit card transactions that consumers want paid rather than denied at the point of sale, financial institutions must obtain consumer consent before paying those items and charging an overdraft fee.

The Overdraft Privilege Revitalization Program with Strunk ensures that a financial institution’s overdraft payment program is consumer friendly and compliant with current regulations and best practices. Like all bank services, overdraft payment policies and procedures should be fully disclosed to consumers, giving them a choice on how they want their account handled.

Our services include a four stage approach: 1) Review existing policies and procedures for paying overdrafts; 2) Make recommendations to improve the process; 3) Implement the time tested and proven strategies to ensure a high level of service and 4) Train your employees on the benefits of a fully disclosed overdraft privilege program.

Our recommendations cover four areas as well: 1) Compliance; 2) Account Holder Service and Education; 3) Operational Efficiency; and 4) Fee Income Enhancement.

Is it time to review your program to ensure what you are doing is meeting the needs of your account holders? Strunk has worked with over 1,800 financial institutions nationwide to help them implement a formal, fully disclosed overdraft payment process.

Importance of an Overdraft Privilege Service Policy

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Consumers should be provided an Overdraft Privilege Service Policy which discloses the limit, fees, and general practices before any limit is assigned, in addition to the standard deposit agreement and fee schedule. The Service Policy needs to be provided at program launch, new account opening or when a consumer account qualifies for Overdraft Privilege.

Disclosing your Overdraft Privilege Program clearly to the consumer in a Service Policy is a key element to any Overdraft Privilege Program.  Having an Overdraft Privilege Service Policy is important from a compliance perspective and it will also help improve the program’s performance because consumers will be more familiar with the features and limits.

Most financial institutions that have an Overdraft Privilege program either don’t have a Service Policy or they have a Service Policy that is not consistent with their other disclosures.  It is always important to be consistent with terminology regarding your program because these are sensitive points with regulators who fear use of different terminology could be confusing/deceptive for the consumer.

Strunk has a standard Overdraft Privilege Service Policy that we offer to our clients and is backed by our compliance guarantee.  Policies should be reviewed and approved by the Board of Directors annually, and as a Strunk Access client, your institution is entitled to assistance in ensuring your policy complies with any regulatory changes that may have occurred during any given year.  Strunk believes it is always better to voluntarily describe the specific benefits, features and limitations of products and services; and to tell consumers what the rules are.

An independent certified public accountant has examined Strunk’s operations and found them to be in compliance with the AICPA’s Trust Service Principles. It was determined that Strunk meets the Security, Availability, Processing Integrity, Confidentiality, and Privacy criteria for SOC 2 established by the AICPA.