Reviewing your overdraft privilege program during a pandemic

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.

Can Strunk’s ODP Manager Software Lighten Your Load?

Do you have employees now working from home? If you are using Strunk’s hosted ODP Manager software, this may allow you to adapt to changing work schedules or locations and easily give new users access. If you are a current ODP Manager client but do not have the hosted version, the upgrade is free!

Enjoy the benefits of a hosted solution. No more application software to support on your own network. No more worries about server and other support software becoming outdated. ODP Manager is upgraded monthly – requiring no support on your end – the upgrades are seamless and automatically available to your users. It doesn’t get any easier.

If you need a more efficient file import process, another huge benefit of the hosted solution is that you can import your extract file directly from your core processor while your users are not on premise. We encourage you to take advantage of ODP Manager’s Automatic Upload option – if your core can generate your extract file automatically then Strunk can help you set up the file import for a scheduled time each day. Then the data will already be imported and available when your users start their workday.

You may be unable to print letters every day or you may be trying to prioritize which letters can be printed at home versus ones that can wait to be printed from your normal branch location. Strunk can help you determine which letters are required and which letters may be omitted. We can also help you make any necessary letter content changes.

ODP Manager can save your reports within the software. Ask us to set up archived reports – then you can refer back to the daily reports as you have time available. Implementation of these strategies should help with the remote management of your ODP program.

 

Overdraft Programs During the COVID-19 Pandemic

Overdraft Privilege has been a staple for consumers for the past 27 years and paying items into overdraft status is better than returning them to the merchant or denying the consumer the ability to take home the groceries or prescription drugs.Given the recent circumstances our country is facing Strunk’s Overdraft Privilege program can help consumers and financial institutions get through these difficult times.

In ad hoc overdraft payment programs financial institutions decide to pay or not pay an overdrawn item and whether to charge a fee or not. These types of programs can be discriminatory and may lead to disparate treatment for some customers. In our formal overdraft privilege program those customers who are in the program want their items paid and they don’t mind paying you a fee. In essence you are saving them the return check charge from the merchant or the hassle and embarrassment of being denied at the point of sale.

Certainly there are times when waives or refunds are warranted. Make sure you have a documented policy that outlines the considerations to factor into the refund decision. Also, keep the authority to grant a refund as tight as possible – the more people with authority the greater chance of disparate treatment.

Strunk’s recommended Fresh Start Loan can be used as a tool to help consumers get back on their feet during financial hardships. If a consumer is unable to pay back an overdraft immediately we recommend allowing them to pay it back over four installments. The zero percent interest loan can be used at any time to help consumers pay back an overdraft over time rather than immediately like it is in most financial institutions.

Four installments could be weekly, monthly, bi-monthly or quarterly. Working with your customer to help them work out of a tight cash flow situation will strengthen the relationship and keep the negative information from affecting their credit score. More importantly, you will keep their checking account open under difficult times. Now more than ever, managing the day-to-day overdraft process as a line of business is a must and your customers will appreciate the service you are providing.

Setting the record straight on excessive use

Lately, there has been a lot of confusion around consumers who ‘abuse’ the overdraft privilege program from our clients.  Our clients have asked us what they should do for their consumers who use the overdraft privilege program on a regular basis and what are the recommended compliance and regulatory practices they should follow for these consumers.

The first thing that we tell our clients is that overdraft privilege is a discretionary service, which primarily means that our clients are not obligated to pay any item.  With respect to both making the service available to consumers and taking it away from consumers, it is very important to be very consistent in applying your policy when managing your overdraft privilege program.  We tell our clients if they are not consistent with their program then desperate or discriminatory treatment could result from this action.

It is very important to understand that only the FDIC has guidance around ‘excessive use’ of overdraft privilege programs. If you are not regulated by the FDIC, then there are no specific rules regarding what a financial institution needs to do in case of excessive use.  FDIC regulated institutions need to notify a customer who overdraws their account on more than six occasions where a fee is charged in a rolling twelve-month period.  One thing to understand is there are no requirements to close an account or take any other specific action to accounts that use overdraft privilege on a regular basis.  Examiners or Auditors that push financial institutions to take action on these customers are really taking regulation into their own hands.

Strunk’s recommendation has always been to utilize the specifics that are outlined in our overdraft privilege service policy.  The only reasons for revocation of overdraft privilege are the reasons outlined in the service policy, otherwise coming up with arbitrary reasons to revoke certain customers access could be challenged.

Make ODP Manager Letters and Events Work for You!

Have you considered how you may customize ODP Manager for your institution?

Do your users need the ability to share information about ODP Manager accounts? ODP Manager allows users to create account comments and reminders. These events are available to all users and you can even add attachments! Overdue reminders are easily viewed each day when logging in.

Are there ODP related letters that you are generating manually? An Ad Hoc letter can be created for you to generate as needed – just enter the account number and the letter will pre-fill with the account information in ODP Manager. Once it is generated, it will be tracked and retained within ODP Manager just like your Collection and Custom letters.

Would you like the letter signature and contact information to change based on the account’s assigned branch? ODP Manager can do that for you!

Would you like your ODP letters to show your logos and footers instead of printing on letterhead? Would you like a user’s signature to print on your letters? If you provide your image files or text, they can be included in your ODP Manager letter templates.

Let ODP Manager help your users streamline account notation and letter generation by implementing these suggestions.

Focus on Reg E Opt-in Now More Important Than Ever

It has never been more important to ensure that your financial institution has adequate coverage in regards to account holder Reg E opt-in. Reg E opt-in allows you to authorize ATM withdrawals and everyday debit card purchases, which may overdraw an account holder’s checking account, as long as they have provided their consent for you to do so.

Data recently released by a 2019 Federal Reserve Payments study shows that only 9% of all transactions in 2018 were from checks paid and 16% were via ACH. An overwhelming 42% of transactions were made via debit card. This decline in traditional transaction types, in favor of a debit card, means that it is extremely important to focus on the proper opt-in approach.

According to Part 205 of Electronic Fund Transfers (Regulation E), the financial institution must give “Reasonable opportunity to provide affirmative consent.”

A financial institution provides a consumer with a reasonable opportunity to provide affirmative consent when, among other things, it provides reasonable methods by which the consumer may affirmatively consent. A financial institution provides such reasonable methods, if—

  1. By mail. The institution provides a form for the consumer to fill out and mail to affirmatively consent to the service.
  2. By telephone. The institution provides a readily-available telephone line that consumers may call to provide affirmative consent.
  3. By electronic means. The institution provides an electronic means for the consumer to affirmatively consent. For example, the institution could provide a form that can be accessed and processed at its Web site, where the consumer may click on a checkbox to provide consent and confirm that choice by clicking on a button that affirms the consumer’s consent.
  4. In-person. The institution provides a form for the consumer to complete and present at a branch or office to affirmatively consent to the service.

By arming your team with the most effective procedures, you can be certain to achieve optimum opt-in for your organization. Strunk has a proven track record of achieving maximum results with financial institutions across the country. We help to more effectively reach your goals, all while remaining in compliance with applicable laws and regulations.

 

Does Your Overdraft Payment Program Have Exclusion Creep?

For the past 27 years Strunk has been the leading provider of formal overdraft payment programs to financial institutions across the country. Many of these programs were put in place in the early to mid 2000’s, well before Regulation E changed the overdraft landscape in 2010.

Some financial institutions have let their programs die and others have put them on the back shelf as fee income derived from the service has gone down. Others continue to wonder what they can do to revitalize their 10-20 year old program.

So, what has happened? In virtually all financial institutions, the number of consumers participating in the formal overdraft program has dropped significantly. For one reason or another, the account holder has been taken out of the formal overdraft payment program. Strunk calls this “Exclusion Creep”. Virtually all of our 1,800 clients had 90%+ participation when the program was implemented but many institutions have 65-75% of their accounts in the program today.

Managing this is paramount to providing a good service to all of your customers and to maximizing fee income. Take a look at your consumer checking accounts and see if they have an overdraft limit assigned to the account. If not, re-qualify them and put them back in the program. Consumers want the service and managing the overdraft program like a line of business benefits everyone.

Does your financial institution have Exclusion Creep?

Managing Fee Waivers and Refunds

As the end of the year approaches, we have seen more and more clients loose potential additional fee income by waiving or refunding customer OD/NSF fees.  This is often lost income potential that is unknown to the institution. Generally most systems are set up to charge fees after the pay/return decisions have been made, so if the fees are waived the income never shows up on the general ledger as either income or the subsequent reversal of income.  Besides the reduction of fee income, waiving or refunding OD/NSF fees can also be a compliance issue.  Regulators have become increasingly sensitive to which accounts are not being held accountable for the fees that their activity dictates should be charged. For instance, if a high net worth individual is not charged overdraft (or other) fees that other accounts are routinely charged, this may be viewed as disparate treatment with all the ramifications that allegations of that nature involve.

The best solution to help alleviate both of these issues is to charge the fee “the night before”, or when the overdraft transactions are presented rather than waiting until the resolution of all items to post the fee. This helps accomplish the reduction in fee income simply because it requires more than a “click” to waive a fee, but rather a refund would need to be run for the reversal of the fee. This also allows for easier tracking of what is being given back to your account holders. With the gross fees as well as the individual refunds posting to the general ledger you can see at any given time how much the institution is giving away in fee income. From a compliance standpoint the institution is charging everyone on an equal basis – if an item overdraws the account then the account is charged – but the officer still has the discretion to refund the fee after the fact. This method is much more trackable and provides much more accountability for fee refunds.

Many of our clients cannot tell how much income they are giving back to customers each month. Part of the issue is addressed above regarding how to account for your fees and the associated waives, but the other issue is simply employees refunding fees back to customers when they ask for it, or sometimes even without them asking for it. In addition, very few institutions take the time to build reports, examine those reports, and hold their employees accountable on a consistent basis.

To assist in managing fee refunds, Strunk recommends that you implement the use of a “Refund Request Form” for employees to provide customers when they request a refund. This accomplishes multiple things. First, it allows the employee to avoid the face-to-face confrontation and having to make a snap decision. Second, it puts the emphasis for refunds back on the customer to show why it should be granted. This does not mean that we will no longer grant refunds, but we would like the customer to have to provide a valid reason why the institution should consider granting the request.

How Can ODP Manager Help You Successfully Manage Your Overdraft Privilege Program?

Overdraft Privilege can be the largest producer of fee income for your financial institution. Think of all the features within ODP Manager as pieces of a puzzle that must all be present in order for you to manage your program successfully!

Did you know that there is a Library in ODP Manager that will provide you recommended, compliant letters and policies? By using Strunk’s templates and generating letters as due in ODP Manager, you are facilitating your program compliance. You also have access to links to all applicable laws an regulations for quick reference.

ODP Manager can also help you more effectively manage your Fresh Start Loan program. Generate collection letters that advise your account holders about the option of a Fresh Start Loan. Create the Fresh Start Loan Agreement using the account data already in ODP Manager. Track repayment plans and use payment reminders to monitor when payments should be received all within the application.

Make sure you routinely monitor the management reports in ODP Manager that summarize your Overdraft Privilege program performance. Use the Summary Report to monitor trends in your NSF and OD Fees and Refunds.

The Account Inquiry section of the software allows filtering, sorting, and exporting of your account details. It also includes standard groups that help you identify accounts to review. Use the Call List group to contact your overdrawn accounts prior to their next collection letter.

Let ODP Manager help you get the most benefit from your Overdraft Privilege program!

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.

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.