Strunk Reports Record Sales

Strunk is proud to report that October was the highest volume software sales month in our history. In addition, October 2019 YTD sales of Risk Manager, our Governance, Risk Management and Compliance management solution, are already up almost 50% relative to full-year 2018. New clients in October range in asset size from just under $100 million to over $1.2 billion.

This success was fueled by Strunk’s strategy to offer a broad range of services, allowing clients to purchase all of our GRC modules, including Risk Assessor, Policy Manager, Controls Manager, Skills Manager, Issues Manager, Vendor Manager plus our hosted ODP Manager software for one affordable price. Clients also signed up for Overdraft Privilege program reviews and implementation of new Overdraft programs.

Strunk CEO Dan Roderick commented, “In just one month we were able to add a record number of new clients across every line of our business and a broad range of software solutions. From my perspective, this is what it’s all about – providing full-featured, easy-to-use tools that also offer clients great value. Our sales team has really knocked it out of the park!”

With Strunk’s Governance, Risk Management, and Compliance (GRC) solution suite clients can greatly enhance internal control and risk management processes and save time. The suite includes:

  • Vendor Manager is a specialized tool for managing vendor risk that standardizes risk assessment methodology and organizes all vendor related documentation.
  • Risk Assessor helps prepare comprehensive risk assessments consistent with regulatory or other requirements, in days, not weeks.
  • Policy Manager organizes all existing policies into a single database, mapped to the relevant standards and control procedures.
  • Controls Manager schedules tests of policy compliance and tracks test results.
  • Issues Manager is a centralized database for tracking all compliance issues and incidents across your entire organization.
  • Skills Manager provides online testing and training to ensure employees are knowledgeable about the organization’s policies.

In addition to our GRC solutions, financial institutions should periodically review their overdraft program to ensure they are not using policies and procedures that are non-compliant with current laws and regulations. Strunk’s comprehensive Overdraft Privilege Program review includes recommendations to increase fee income and ensure compliance. Additionally, clients receive access to our state-of-the-art program management software, ODP Manager.

Why is Overdraft Protection Important

Financial institutions across the country have to make decisions every day when it comes to accounts that show insufficient funds. Should the institutions pay an overdrawn item and take a chance the customer will pay them back or should they return or deny the transaction?

Most banks and credit unions charge the same fee whether they pay an item into overdraft status or return it to the merchant (in the case of paper checks). The question always comes up…who would want you to return the item to the merchant? Furthermore, what happens when the item is returned and what are the consequences to the customer? There is nothing good that happens when an item is returned and it only causes grief to the consumer. In this particular case, grief in the form of additional fees from the merchant or being redlined for future non-cash purchases.

Formal consumer centric overdraft payment programs started in the early 1990s and consumers have benefited greatly. Since the same fee is levied either way, the grief and embarrassment of returned checks is eliminated. For debit card or ATM transactions, consumers can decide on their own if they want the debit authorized or not. About half of a financial institution’s customers want to take the groceries or prescriptions home rather than being denied when using a debit card. Others never want to overdraw their account regardless of the situation.

This is the reason Overdraft Privilege and other forms of overdraft protection programs work. The daily overdraft decision process is easier for the financial institution and consumers like the program. A rare win-win in banking.

Take Advantage of ODP Opt-In Opportunities

How are you communicating with your account holders in your Overdraft Privilege Program? Are you able to not only advise account holders of the benefits of Overdraft Privilege but also remind them that they can authorize Overdraft Privilege service for ATM withdrawals and everyday debit card purchases? Strunk’s overdraft management application, ODP Manager, allows you to do just that!

You should consider sending both Welcome and Reinstatement letters to your account holders when overdraft limits have been assigned or when account holders requalify for Overdraft Privilege. When you send these letters to accounts that have not opted in for Regulation E, you should remind account holders that they have the option to authorize Overdraft Privilege for ATM and debit card transactions. ODP Manager can identify the accounts that have not opted in and generate a letter that includes the Consent Form for Overdraft Services and information about other ways to opt in. You can even set up a form in ODP Manager to allow your account holders to opt in online.

Additionally, ODP Manager allows you to send a letter periodically to account holders in your Overdraft Privilege program who have not opted in to or opted out of the ATM/everyday debit card Overdraft Privilege coverage. This is another opportunity to explain this additional feature to your account holders and to provide a consent form and additional opt-in methods.

Once you start taking advantage of these additional opportunities, the ODP Manager software can help you monitor your progress using daily reports and a dashboard that tracks progress over time.

Tell Your Story … Before the Examiner Does

Most bankers understand the importance of explaining their philosophy, strategic direction, successes and challenges to directors, auditors, examiners, analysts, and even their fellow executives and employees. They know it’s always better to tell their story before opinions are formed and judgements made about the condition and direction of their institution. Waiting until questions are asked after financial statements or audit reports reflect any weakness, or worse, when examiners arrive on-site, often means responding defensively to what is typically a very good story about management’s ability to identify, measure, monitor and mitigate risks. Given its undeniable importance, the best bankers excel at presenting the facts first and then reinforcing the message about the quality of their management team. If done efficiently, your comprehensive enterprise risk management report will provide the perfect opportunity to tell your story.

The issue is one of timing. Everybody’s busy and nobody has time to continuously repeat what we may naively assume is a message everybody has already heard and retained. But we aren’t always in front of the audience when issues arise. Examiners, for example, spend a considerable amount of time off-site analyzing the institution before coming through your doors. Their pre-work is critical to ensure an effective, risk-focused examination. In the process, it’s inevitable to have opinions formed and even CAMEL ratings roughed-out before speaking with management. Bankers must ensure their own viewpoint is timed to arrive before being judged by examiners, directors, auditors, and others. In particular, your enterprise risk assessments should clearly communicate management’s perspective on all risks, and especially your highest risks.

Equally important is presenting all the facts in a credible manner. The truth eventually comes out, and if people closest to the work fail to acknowledge high risks and other issues before they are obvious, it means they either can’t be trusted because they hid the facts, or they are deficient because they didn’t know the facts. Bankers conduct comprehensive risk assessments for this exact reason: identify the risks and then measure, monitor and mitigate them. ,Risk assessments are fundamental to the business of banking. Done right, they ensure no stone is left unturned and they validate management credibility. They provide the facts backing the story.

Identifying risks comes naturally to most bankers – we’re in the risk taking business after all – but completing and communicating risk assessment results has often been labor intensive and time consuming. If not done efficiently, individual and enterprise risk assessments can drain resources, incur opportunity costs by diverting resources from other important assignments, and lead to frustration and corner-cutting. The key is ensuring individuals closest to the action conduct or oversee the risk assessment in their functional area, but not require them to spend an inordinate amount of time on the work. About an hour each quarter should prove sufficient at most institutions for executives to complete the task…provided they have the right tools to perform the assessment.

Most bankers appreciate how important it is to tell their story to the right audience before opinions are formed and judgement passed. Comprehensive Enterprise Risk Assessments present a golden opportunity to do just that if they can be done efficiently and without draining resources or busting the budget. Enterprise Risk Assessments are the perfect way to back your story with facts.

Latest ODP Manager Enhancements

At Strunk, we are committed to providing best-in-class software solutions, and are constantly providing enhancements that we feel will best serve our clients. This month we are pleased to announce the addition of ODP Manager Dashboard within our industry-leading overdraft management application, ODP Manager.

ODP Manager clients will now be able to see their performance over time, as well as in comparison to our entire customer base, for five key indicators: Percent with Limit, Percent Opt In, Overdraft Fee, Consumer Overdraft Limit, and Business Overdraft Limit. The dashboard will graphically display the organization’s performance in purple as compared to the 25th, 50th and 75th percentile statistics for our entire client base. The Dashboard will also display the organization’s monthly trend for Percent with Limit and Percent Opt In.

Each quarter we will email clients a summary of their performance, along with tailored recommendations to address areas that may need attention. We believe the new ODP Dashboard will help clients more effectively monitor overdraft program key indicators and improve performance over time.

New Website Featuring GRC & ODP Software Tools

Strunk today announced the launch of a new public website at a new domain: StrunkAccess.com.  The new site provides more information about Strunk’s GRC and ODP software tools in an updated design.

In addition to fee enhancement consulting, Strunk provides comprehensive, easy-to-use and affordable Governance, Risk Management and Compliance software tools that improve compliance and productivity for financial, online and healthcare services providers. These tools are:

Risk Assessor helps prepare comprehensive risk assessments in a matter of days, not weeks.

Policy Manager organizes organization policies into a single database, mapped to the relevant audit standards and control procedures.

Controls Manager schedules tests of policy compliance and tracks test results.

Issues Manager is a centralized database for tracking all compliance issues and incidents across the entire organization.

Vendor Manager is a specialized tool for managing vendor risk that standardizes methodology and organizes all the documentation.

Skills Manager provides online testing and training to ensure employees are knowledgeable about organization policies.

According to Strunk CEO Dan Roderick, “Strunk has grown quite a bit over the past few years and we wanted our public-facing website to demonstrate more comprehensively our expanded services and growth into new markets. We also felt it was time to update our domain name to more accurately reflect who we are.”

Strunk’s old domain name, StrunkLP.com, will continue to work for the online application, which is being transitioned to app.strunkaccess.com.

What About Dynamic Limits?

The concept of ‘dynamic overdraft limits’, where different customers get different limit amounts based on purported risk, was developed for very large FIs,  with the primary goal of reducing risk, with little regard for consumer convenience or fee income. At Strunk we believe dynamic limits are a bad idea.

First let’s talk about risk versus reward. Risk associated with overdraft protection is typically the same or less than what we are familiar with on the lending side of our business—but our margin is higher. Under any scenario, the loss experience on overdrafts relative to revenue is a fraction of what is experienced in any loan portfolio. With overdrafts, when we manage down charge-offs too tightly, we end up managing down revenue and income even more. Focusing on the risk from overdrafts is focusing on the wrong side of the income statement.

The second issue is the effectiveness of dynamic limits in reducing risk. It might make sense to change the availability of overdraft protection based on prior history or credit score. Assuming all you care about is reducing charge-offs without regard to the impact on fee income, it might make sense to take people out of your program who demonstrated higher risk levels. But why would you change their limit? If you are comfortable with the risk, then give them a limit, but if you are not comfortable you should be giving them a limit of zero. And this whole argument assumes you have a valid model for predicting charge offs in the first place!

The third issue is use. For your program to be of any use to the consumer and to make money, you need to be giving limits to those who will make use of the program. There is not a lot of value created for anyone when you assign large limits to your best customers who never overdraft. We believe that the parameters most banks are using to assign dynamic limits are actually negatively correlated with overdraft usage, so dynamic limits have the effect of making the program less useful to those who need it most and hence lowering fee income.

The final issue is disclosure. If you are constantly changing your customers’ limits, you have the headache and expense of keeping them up to date. And even if you are effective in keeping them up to date, the effect of changing limits on the consumer will be to discourage usage, because the consumer is just not sure or can’t remember what his limit is at the moment.

Because we have such extensive experience implementing ODP programs across the country, and because of our ongoing relationships with all of the regulatory agencies, we are well positioned to ensure that the practices implemented by your institution are fully compliant and will not lead to increased regulatory scrutiny, regulatory criticism, or claims of unfair, deceptive, or abusive acts or practices. It’s easy to come up with a marketing idea to improve fee income – it’s not so easy to be certain that idea won’t result in regulatory backdraft. The potential revenue gain – if any – has to be considered in the context of the potential regulatory risk. What we might think is a good marketing idea, they often see as coercion.

Strunk has implemented more overdraft programs than any other provider in the industry. We believe that overdraft programs are a huge convenience for your customers, in addition to their benefit to your net fee income. To be effective for consumers and minimize the risk of regulatory violations or nuisance law suits, they need to be simple.

Are Continuous Overdraft Fees Hurting your ODP Program?

Remember the old story about a farmer that discovered his goose was laying golden eggs? He got greedy and decided to kill the goose to get all the eggs at once, only to discover there was nothing inside. Well, this is a good analogy for overdraft privilege – your ODP program is the goose and ODP income is the golden egg. The farmer in my analogy would be continuous overdraft fees. What is a continuous overdraft fee? Some financial institutions charge additional fees if an account is overdrawn longer than a certain period of time. If that period of time is three days, for instance, and the account has not been brought back positive, then a daily charge (typically $5-$7) is added until the account is no longer overdrawn. A continuous overdraft fee may put a stranglehold on your golden goose and potentially subject your institution to regulatory criticism.

Examiners closely monitor overdraft programs. A financial institution’s disclosures and practices relating to continuous overdraft fees may give rise to UDAAP violations if actual practices do not precisely follow disclosure. Financial institutions are encouraged to review the information provided to consumers concerning overdraft services, particularly any continuous overdraft fees, and conduct transactional testing to ensure that the financial institution is charging these fees as disclosed. If a financial institution assesses a fee based on calendar days but a customer can only cure the overdraft on business days, this could be problematic. For example, if a financial institution charges a continuous overdraft fee after three days, and an overdraft occurs on Thursday, the third calendar day after their overdraft is Sunday. Because the FI is probably closed on Sunday, if a fee is imposed for that day the FI will likely be found in violation.

A continuous overdraft fee has other areas of concern regarding compliance issues. FDIC guidance around excessive use states that if a customer overdraws his or her account on more than six occasions where a fee is charged in a rolling twelve-month period, the financial institution must take meaningful and effective follow-up action. An “occasion” occurs each time an overdraft transaction generates a fee. This means that the FDIC considers each continuous fee to count toward the six occasions before the financial institution needs to reach out to their customer to council them about their account. So one overdraft fee plus five days of continuous fees and the customer is at six occasions in one week. There are concerns with this because most core systems are unable to track the continuous fees as an occasion and it leaves the financial institution vulnerable for not tracking the customer overdraft occasions properly and not effectively sending out information to customer on alternative overdraft programs. Also charging fees significantly greater than the amount of the item being cleared could increase the financial institution’s reputational risk.

Another area of FDIC concern around overdraft privilege programs is daily overdraft limits. Most financial institutions will implement a daily limit on their overdraft program by the number of transactions that will be subject to a fee. Stating your overdraft limit this way you could result in lost fee income because a continuous overdraft fee, typically less than an overdraft fee, will count toward your daily limit. The best way to set your daily limit is by capping your total allowable fee. You can do this by having a specific maximum dollar amount of allowable fees per day. Doing this allows us to maximize our income from overdraft fees and helps prevent the question of whether a continuous overdraft fee should be part of the daily limit or not.

There are better ways to increase fee income aside from raising the price or charging multiple times for the same problem. Start by reviewing your current ODP program to ensure that key performance indicators are being achieved. Also consider new fee-based services tied to your DDA that add value for your customers so that a large portion of the base will be happy to pay and where the fee is far less than the value provided.

Law Firms Seeking Plaintiffs to Sue Credit Unions

Law firms have started using social media and web advertising to recruit class action plaintiffs to sue credit unions regarding their overdraft practices and disclosures. Demand letters or complaints filed may make several allegations, including:

  • Violations of EFTA and Reg. E, even where the credit union uses the Model A-9 form.
  • Breach of contract due to unclear or ambiguous terminology in account agreements, such as lack of clarity as to how the credit union will determine that there are insufficient funds in the account.
  • Violations of state consumer laws, such as California’s Unfair Competition Law, New York’s statute addressing deceptive acts and practices, or New Jersey’s Consumer Fraud Act.

Strunk agrees with the risk mitigation recommendations from the CUNA: Credit unions should review their processes for handling reinitiated/resubmitted incoming electronic debits to member accounts that the credit union previously returned unpaid due to insufficient or uncollected funds resulting in an NSF fee. If your credit union charges another NSF fee for reinitiated/resubmitted items that are returned unpaid again, review your account agreement to ensure it discloses that NSF fees may be imposed on the same transaction.

If your credit union assesses overdraft fees based on available balance rather than actual balance/ledger balance, review your account agreement to ensure it contains a description of how certain transactions, such as debit card pre-authorization holds and check holds, impact the available balance, including examples of each. For debit card pre-authorization holds, ensure the account agreement discloses how subsequent debits to the account impact the available balance and that an overdraft fee could be assessed when the debit card transaction posts to the account taking it negative.

It has always been Strunk’s recommendation to precisely disclose the method used to calculate available balance in your account agreement. Because Strunk ODP documents refer to the use of Available Balance, which should be properly disclosed in the member account agreement, there are currently no recommended changes to Strunk’s ODP documentation. We will provide additional information if there are any upcoming changes to our disclosure documentation.

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.