Digital Lending to Attract Millennials and Gen Z’s

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For years community banks have tried to attract younger consumers to replace older customers whose deposits generally leave the bank when they pass away. Also, baby boomers and the silent generation born before 1959 tend to be deposit gatherers rather than borrowers.

During the pandemic in 2020 that continues on in 2022, consumer buying habits have changed as well. More purchases are being made online and companies like Amazon and Walmart have flourished. Paying for purchases when baby boomer bankers grew up were either on a lay-a-way plan at JC Penney or credit cards were used. Some merchants financed the sale so consumers in the 1970’s and 80’s could pay over time for their purchase.

As with many banking products providing a service that your customers want and need is imperative to survive. Evergreen credit cards that never seem to get paid off are somewhat out of favor with the younger generation. The Buy Now Pay Later business is expanding at warp speed and your customers love the simplicity of this relatively new service…unfortunately, banks are missing out on a big opportunity.

Bring in Digital Lending in 2022. Quilo has developed an easy to use yet sophisticated smartphone lending solution that enables your bank to participate in this prime lending business. Digital banking has been around for quite some time on the deposit side of the house but not lending…until now.

Take 45 minutes to see the demo of Quilo. You will be amazed what technology can do to attract younger consumers that are currently using Fintech companies for this service.

Simple and Efficient Management of the Fresh Start Loan Process using ODP Manager

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Fresh Start Loans can help customers resolve their overdrawn account status with up to four payments and can allow them to keep their checking account open. Fresh Start Loans are also a collection tool that can help financial institutions recover and collect on overdrawn accounts that might have otherwise charged off and been closed. Leveraging the tools included in ODP Manager can make managing the Fresh Start Loan process easier and more efficient.

A repayment schedule can be entered for each account with an approved Fresh Start Loan. It will include payment reminders that display when the FSL payment is due to remind your users to check if the payment has been made as agreed. Once verified, FSL payments can also be tracked in ODP Manager.

Instead of needing to create agreements outside of Strunk’s ODP Manager, the Fresh Start Loan Agreement document can be generated directly from the repayment schedule. In addition to generating the agreement from the repayment schedule, users also have an option to generate the agreement as an Ad Hoc letter.

If customers under a repayment schedule do not pay their Fresh Start Loan payments as agreed, the default close letter can be generated and tracked in ODP Manager as well. If any other Fresh Start Loan letters are needed for accounts in a repayment status, an Ad Hoc letter template can be created. By entering the deposit account number, ODP Manager will pre-fill the account information. After the letter is generated, it will be tracked and retained in ODP Manager just like the other Collection and Custom letters.

ODP Manager includes a report that lists all accounts currently under a Fresh Start Loan status. If details are needed about current repayment schedules, a Repayment Schedule summary report can also be exported to PDF or Excel.

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

Consumer Lending Opportunity for Banks

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Consumer lending has been a thing of the past for most community banks since credit cards took over unsecured small dollar lending in the 1980’s. Some banks try to compete with credit unions and auto companies for indirect car paper but that has diminished as well due to unprofitable low rates the competition is providing. Core processors have been slow to react to financial technology firms who are providing young consumers with products and services they want and use…digital lending.

Until now, community banks have been shut out of this market. Quilo is a digital lending tool that allows banks to make and underwrite the loans while allowing the smart phone app to fund, collect, and manage consumer loans profitably. Quilo provides instant access to loans of $250 or more through a virtual card on your customer’s phone. Consumers can also use Quilo to pay down or pay off high interest rate credit cards or replenish their checking account at your bank for recent debit card purchases.

Your bank has complete control over the credit risk. Maintaining minimum and average credit scores of the portfolio ensure that credit quality remains high. The Quilo scoring engine does a soft pull of the consumer’s credit bureau report to determine if a loan should be made and what amount. If the consumer qualifies and takes a “Quilo” the interest rate is calculated based on risk of loss, bank’s cost of funds and desired return, and processing costs. Typically the interest rate to the consumer will be between 8% and 12%. The term of each loan is determined by the consumer. The return to the bank is 5%-6%. A pretty good yield given today’s interest rate environment.

To set up a 45 minute demo of Quilo demo contact Strunk at info@strunkaccess.com or 800.728.3116.

Strunk at the WBA Lenders & Chief Credit Officers Conference

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Last week the Western Bankers Association hosted its Lenders & Chief Credit Officers Conference, their first in-person event since early 2020. Strunk was excited to attend and to introduce Quilo, an instant installment loan solution directed at consumers.

The four day event was hosted at The Ritz-Carlton, Laguna Niguel and was packed full of content for bankers. The agenda included sessions on “Making and Sustaining an ‘All-Weather’ Credit Culture”, “Issues in Commercial Lending”, “Grow Loans and Protect Income Through Hedging” and a Legislative Update from Keven Gould, SVP – Director of Government Relations for the California Bankers Association.

Strunk’s CEO Dan Roderick was pleased to demo Quilo prior to the Interactive Discussion with Bank Chief Appraisers. Quilo is a fully turn-key FinTech consumer installment loan program that will allow you to tap into the EXPLOSIVE ‘buy-now-pay-later’ instant installment loan market to increase loan volume and margin.

Technology has changed the market for installment loans and Quilo can put community banks on the path to high loan growth and increased profitability. Quilo is a game changer. Utilizing the latest in technology, Quilo creates the opportunity to give consumers what they prefer.

Bankers were enthusiastic about the solution and we look forward to continued conversations with many of the conference attendees. If your bank is interested in growing your loan portfolio and improving your margin, let us show you how Quilo can make that happen.

Finding the way through Regulatory Requirements

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Recently, there has been a lot of confusion in regards to what is required for non-FDIC regulated financial institutions regarding their overdraft privilege program. Strunk has received several questions from our non-FDIC regulated clients (financial institutions that are regulated by either OCC, Federal Reserve or NCUA) regarding findings from either auditors or examiners.  It seems there is some inconsistency surrounding the messages these clients are receiving regarding their regulatory responsibility regarding overdraft fees.

Overdraft privilege programs are overly scrutinized from financial institutions, auditors and examiners.  It is very important for financial institutions to understand and implement applicable regulations to ensure an effective, compliant approach to their overdraft privilege program. Part of that process is knowing what your regulatory agency requirements are for your overdraft privilege program.

In 2005, the OCC, Federal Reserve, FDIC and NCUA published interagency guidance ‘Joint Guidance on Overdraft Protection Programs’ describing expectations and best practices for overdraft privilege programs. In 2010, the FDIC issued a final rule that focused on requirements and recommendations for FDIC-regulated institutions that utilized an automated overdraft privilege program. In this ruling it states that FDIC-supervised institutions should monitor their program for excessive or chronic customer use, and if a customer overdraws his or her account on more than six occasions where a fee is charged in a rolling 12 month period, then the financial institution should undertake meaningful and effective follow-up action.  Also, in this ruling the FDIC is requiring their regulated institutions to use a de minimis threshold before an overdraft fee is charged and set daily limits on how many overdraft fees that the institution can charge a customer.

To understand this, it means that financial institutions that are not regulated by the FDIC (OCC, Federal Reserve and NCUA) are not required to monitor for excessive use because these agencies have never defined what excessive use or high numbers of overdrafts are. Also, non-FDIC institutions are not required to impose a daily cap on overdraft fees, and they are also not required to set a de minimis. For non-FDIC institutions, auditors and examiners can recommend that an institution implement these items but they should never make it a requirement because there is no regulatory requirement for your institution.

Reg E Opt-In Options Presented in ODP Manager

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How are you offering your customers the chance to opt in for Regulation E to choose ATM and everyday debit card coverage for Overdraft Privilege? There are four options for a customer to consent: in person, by mail, over the phone, or electronically.

Strunk’s hosted ODP Manager software can help you provide your customers with the information they need to choose to have their ATM and everyday debit card transactions covered by ODP.

When you include the Reg E Opt-in Flag in the extract file, ODP Manager can determine if an account has already opted in or has not yet responded with a Reg E election. This allows financial institutions to provide the Consent Form to Overdraft Services to accounts that have not yet opted in. When a Welcome, Reinstatement, or Followup letter is mailed to these accounts, these letters include the A-9 Consent Form and the information about opting in by contacting you by mail, in person or over the phone, or electronically.

If a customer has already opted in for Reg E coverage, the Welcome and Reinstatement letters will remind them that their Overdraft Privilege service includes coverage of ATM and everyday debit card transactions.

If you would like to use ODP Manager to offer your customers the option to opt in on your website, Strunk can create a Reg E opt-in form that mirrors the content in your ODP Manager letters. When your customer submits the Consent Form electronically, the opt-in consent is tracked in ODP Manager, and a confirmation of the Reg E election is emailed. The ODP Manager software will also provide the Confirmation of Opt-in letter to be mailed.

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

Profitable Consumer Lending for Banks

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Lay-a-way programs started in the 1930’s and became very popular with consumers in the 1970’s where a merchant would reserve an item for a consumer until a consumer completed payments for the item. This was a prevalent way to make purchases for Christmas presents. Then in the early 80’s, lay-a-way programs were replaced with credit cards. Community banks didn’t have a profitable way to compete. Now credit cards are being replaced with Buy Now Pay Later programs that flourished during the pandemic in 2020.

Except for the largest banks who offer credit cards, financial institutions have been left out of the installment lending business again just like 40 years ago. Bank’s core processors have been slow to adapt to the changing consumer purchasing landscape as millennials and Gen Z’s head to Fintech companies for financing.

Over ten years ago, Square produced a digital payments solution for small businesses that far exceeded any banking offer. Six years ago Quicken Loans became the first lender to perform electronic closings for home mortgages. Now Affirm, Klarna, Sezzle, Zip, Openpay and others have developed products that have kept the banks on the sidelines once again. When will banks have an opportunity to compete for consumer loans?

Strunk’s Quilo program provides instant access to consumer loans via mobile device that enables banks to compete in the changing world of consumer lending. Underwriting, funding, collections and reporting are all done through the Quilo solution and there is no hassle for the consumer or the bank. Controls are set up to meet the bank’s credit risk standards as well as the desired return. When was the last time your bank made a $600 loan profitably? Best guess is was at least four decades ago.

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

Top 10 Overdraft Program Questions

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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

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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

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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.

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.