Communicating Alternatives to Overdraft Privilege

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Financial institutions are expected to monitor excessive consumer Overdraft Privilege activity in order to advise customers of alternative options to cover overdrafts.

FDIC regulated institutions are expected to give customers who overdraw their accounts on more than six occasions where a fee is charged in a rolling twelve-month period a reasonable opportunity to choose a less costly alternative and decide whether to continue with fee-based overdraft coverage. Strunk also recommends that institutions not regulated by the FDIC also communicate available alternatives to ODP on an annual basis to accounts with insufficient funds items.

The hosted ODP Manager software includes a letter template which can be used to notify customers of the available alternatives to Overdraft Privilege. The alternatives, overdraft protection credit lines and/or overdraft protection transfers from a linked account, are both described in the letter including information about associated charges or fees and whether an application or request is needed to initiate coverage.

This Excessive Use Notification letter can be generated in ODP Manager based on criteria included in the daily extract file or as needed as an Ad Hoc letter. If the file imported daily into ODP Manager includes data from the core that indicates when an account has qualified for the letter by exceeding the threshold, the hosted software can automatically show when a letter is due. If the data is not available in the extract file, letters can be generated for each account identified using an existing core report or other method.

Whether the letter is generated based on criteria or as an Ad Hoc letter, the letter will be tracked for each account and retained within the hosted ODP Manager software.

Please contact Strunk Support at support@strunkaccess.com with any questions or to find out more details about ODP Manager’s Excessive Use Notification Letter.

Strunk Response to Recent Overdraft Headlines

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It is no secret that overdrafts and overdraft fees are making the news quite frequently these days. This increased attention often puts pressure on community financial institutions specifically, as the articles and reports are often unclear. Questions like, ‘is there something our FI is required to do?’ or more simply, ‘should we be doing something?’ arise.

Most recently, the Consumer Financial Protection Bureau (CFPB) has released a report stating that banks’ overdraft/NSF fee revenue has declined significantly compared to pre-pandemic levels. The CFPB stated that “Bank overdraft/NSF fee revenue was lower in 2020 and early 2021 than before the pandemic, which was likely largely due to pandemic-related stimulus checks pushing up average checking account balances. In the second half of 2021, as the pandemic stimulus wound down, overdraft/NSF fee revenue rebounded somewhat, but began decreasing again through the third quarter of 2022 – likely due to changes in bank policies.”

The CFPB states in their report that they ‘have not observed correlating increases in other listed checking account fees, which suggests that banks are not replacing overdraft/NSF fee revenue with other fees on checking accounts.’  The report identifies the largest banks in the United States, and while those banks can afford these changes, the report fails to review how this will affect community financial institutions.

It is important to understand that the comments in the report are a function of two primary things:

  1. Consumers have changed their behavior regarding overdrafts because of the pandemic.
  2. Mega banks chose on their own to drastically cut NSF and OD fees. Those banks have many revenue sources and can afford to be magnanimous, while community financial institutions do not have that opportunity.

Quite possibly the most critical message here is, there is no new regulation and nothing for the community FI to do, for now. Strunk will alert clients if any new rule making is introduced by the CFPB, and thus changes become necessary. Strunk’s overdraft program remains complaint by offering clear and appropriate disclosures, easily accessible reports and ongoing employee training.

Community FIs might still feel the strain of lost revenue and should explore new fee income strategies and profit improvement opportunities with Strunk to get out in front of this challenge. It has never been more important to shift focus and to diversify the ways fee income is produced for the community FI.

Key Event History in ODP Manager

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Each day, an extract file is imported into ODP Manager to update each account with the most current data from the core. After the import, the letters due and the reports will reflect the up-to-date information – but what if a user needs to review the past information for a customer’s account?

Key account events are tracked within the software with each import and letter generated. After the file import completes, each account has been updated to note if the account is now closed, if it is now overdrawn, or if it has now moved into good standing. If overdraft limits were assigned or removed, or an account has opted in or opted out for Reg E, the account is also documented. When letters are generated, the hosted software updates the account’s history with the type of letter, the letter template, and the date. A PDF of the letter is also retained and linked to the event history.

In addition to these software-generated events, ODP Manager users can create their own events in the form of comments, reminders, repayment plans, and charge-off items. These items can be viewed and updated by all ODP Manager users.

Both comments and reminders are used to note additional information about an account and can include attachments. The main difference between the two is that a reminder will allow a user to specify the due date for follow-up action. Overdue and upcoming events display under the Events section of ODP Manager. Repayment plans create reminders for overdue fresh start payments. Charge-off items track the amounts charged off by account and can also track any recoveries received.

Please contact Strunk Support at support@strunkaccess.com with any questions or to find out more details about ODP Manager’s account event tracking.

Overdraft Privilege Provides a Much Needed Service

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Before the early 1990’s, banks typically returned all items that would cause an overdraft on a consumer checking account. When overdraft privilege programs started consumers were thrilled that their overdrawn items wouldn’t automatically be returned to the merchant. Thirty years later, Strunk, the pioneer of overdraft programs, is still helping banks provide efficient, compliant overdraft services to community banks across the country.

Overdraft programs have come under scrutiny since 2005 when the FFIEC published best practices for paying items into overdraft status. All of the guidance set forth by the regulators were meant to disclose the bank’s policies and to ensure those policies were followed…just like any product or service a bank offers.

In 2010 banks couldn’t automatically pay and charge for a debit card caused overdraft without consumer consent. Another great regulation! Then in 2011, the FDIC asked banks to provide notice to excessive users of overdrafts by notifying consumers each time that had six overdrafts in a twelve month period. Perfect solution to reminding customers of their bad habits!

More recently the FDIC has been concerned about disclosing second presentment fees on the same check. This occurs when an insufficient item comes through, the bank returns it to the merchant, and the merchant sends it back so they can get paid for the purchase the consumer made. Notifying consumers that a fee may be levied against the second presentment is a tremendous idea. There is also a concern that debit card transactions may be approved with a positive balance and when the item actually hits the account it is negative and an overdraft fee is charged.

Lastly, the CFPB is concerned about “junk fees” where someone makes a deposit then the check they deposited comes back insufficient. Some banks levy a charge for the insufficient deposited item even though the depositor wouldn’t have known that the check would be returned.

Contact Strunk at info@strunkaccess.com to learn more about how to run an Overdraft Privilege program in a compliant and profitable way that benefits consumers.

ODP Manager Letters as Needed

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The hosted ODP Manager software uses information from a daily extract file to determine when Collection letters should be sent to overdrawn accounts and which Custom letters should be sent to accounts when overdraft limits are assigned, or accounts opt in for Reg E. In addition to the Collection and Custom Letter functionality, the software also allows users the flexibility to send Ad Hoc letters as needed. These letters don’t rely on an account event to be triggered so users are not limited to criteria included in the daily extract file.

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 Strunk set them up as Ad Hoc letter templates in the ODP Manager software.

If a user has a list of accounts that need to receive the specific letter, an Ad Hoc letter can be generated using the template, and sent to the customer. When you need to generate the letter, just enter the account number and the letter will pre-fill with the information from the software – name, address, and any other relevant fields. Letters can be generated one account at a time, or multiple account numbers at once. Once the letter has been generated, ODP Manager tracks and retains the letter just like your Collection and Custom letters.

Please contact Strunk Support at support@strunkaccess.com with any questions or to find out more details about using ODP Manager’s Ad Hoc letters.

Give ODP Customers a Fresh Start using ODP Manager

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A Fresh Start Repayment Plan is a tool available to overdrawn customers that will allow them to repay the overdrawn balance in up to 4 payments and will also allow them to retain the use of their checking account. It also may help financial institutions recover and collect on accounts which may have otherwise charged off.

ODP Manager collection letters advise customers that have overdrawn balances of $100 or more that they may be able to pay back the overdraft balance in up to four installments rather than the entire balance at once. Interested customers are then assessed to determine the customer’s ability to qualify and repay the Fresh Start.

With each approved Fresh Start repayment plan, ODP Manager users can enter a repayment schedule for each account. The repayment schedule can be used to populate the Fresh Start Agreement or users can also populate the FS Agreement directly as an Ad Hoc Letter. The repayment schedule includes reminders that display when a FS payment is due. When the payment is due, ODP Manager users can check the core system to confirm if the payment has been made as agreed. Once verified, Fresh Start payments can also be tracked in ODP Manager.

If a customer’s Fresh Start payment is not paid as agreed (ten or more days past due), the Fresh Start is in default and the checking account should be closed and charged off. The Fresh Start Default letter in ODP Manager can be generated to notify the customer that the account has been closed, charged off, and reported to the appropriate agencies.

If any other Fresh Start 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 two types of Fresh Start reporting. The Fresh Start Tracking report displays a list of all checking accounts currently under a Fresh Start repayment plan with a Fresh Start ODP Status code. 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 to find out more details about ODP Manager’s Fresh Start Repayment Plan features.

Strunk’s Document Library and Customizable Letter Options

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Access to a document library that includes Strunk’s recommended, compliant letters and policies is included with Strunk’s hosted ODP Manager software. Users can log in and review the recommended documents and compare them to letters currently set up in the ODP Manager software.

The hosted software makes it easy to log in and review active letter templates, even if you do not have any letters due. When you view the Collection, Custom, or Ad Hoc letter template, a sample PDF of the letter displays automatically using one of the accounts imported from your daily extract file. The PDF can be printed or saved so that you can easily compare it to Strunk’s recommended templates in the software Library. ODP Admins are able to make any necessary changes to letter templates or can request that updates are made by Strunk Technical Support.

Though Strunk provides the recommended letter content there are also customizable letter template options which will allow you to update the letter appearance to match other letters sent by your institution.

Header and footer information can be set up in ODP Manager to allow users to print on plain paper instead of letterhead. The hosted software also includes the flexibility to store signatures for each of your users. The signatures would then print automatically when the letter is generated – no need to sign letters! The same signature can be set up for all letters or the signature can change based on the user generating the letters, the letter type, or the letter template.

ODP Manager can update the contact name or phone number displayed on letters based on the account’s assigned branch. This allows you to provide your customers with the most appropriate contact information – whether customers contact a central location or their local branch to discuss the Overdraft Privilege program.

Please contact Strunk Support at support@strunkaccess.com with any questions or to find out more about the software Library or letter template options.

 

CFPB Guidance: Surprise Overdraft Fees and Returned Check Fees Explained

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The Consumer Financial Protection Bureau (CFPB) published guidance on October 26, 2022, stating that “surprise overdraft fees” and “returned deposited item fees” generally constitute “unfair practices” in violation of the federal Consumer Financial Protection Act when consumers are unable to avoid them. In its analysis, the CFPB underlined that an act or practice is illegally unfair when it significantly harms consumers or is likely to do so, harm that consumers cannot reasonably be expected to avoid, and (ii) harm that is not outweighed by advantages to consumers or to competition.

The guidance from the Consumer Financial Protection Bureau (CFPB) (Circular 2022-06) focuses on “unanticipated” overdraft fees, or those resulting from activities that a consumer would not ordinarily anticipate an overdraft fee. The guidance focuses on debit card transactions in which the available amount appears to be sufficient when the consumer initiates the transaction but is insufficient when the transaction is settled, resulting in an overdraft fee. According to the guidance, consumers may readily check their available balance via mobile apps, the internet, ATMs, or their phone, so they shouldn’t fairly anticipate paying an overdraft fee in this circumstance.

In addition, the guidance states a consumer is likely to reasonably expect that if a debit card transaction is authorized at the point of sale, he or she will not later incur an overdraft fee. The guidance notes that consumers cannot reasonably be expected to understand and account for delays between authorization and payment, nor can they control the methods by which a financial institution settles other transactions that could affect the imposition of overdraft fees. The guidance concludes that the injury from unanticipated overdraft fees likely is not outweighed by any countervailing benefits to consumers or to competition.

According to the CFPB’s guidance (Circular 2022-06), practices that charge consumers flat fees for all transactions, regardless of the specifics of the transaction or patterns on the account, are probably unjust. Since a depositor typically has no influence over whether a deposited check will be paid or not and has no reason to anticipate that a placed check will be returned, the guideline emphasizes that consumers are not reasonably able to avoid such costs.

According to the guidance, returned deposited item costs harm consumers significantly and are not likely to be offset by advantages to consumers or to competition. It’s crucial to remember that the guidance focuses on financial institution policies that broadly impose returned deposited item fees in situations where consumers are unaware that checks may be returned. The guidance states that policies with fines that are intended to deter consumer conduct, such as frequently depositing faulty checks from the same originator or depositing checks that are not signed, are not in violation of the rule.

The good news is neither of these issues should prohibit any FI from keeping their ODP program in place! However, action must be taken to avoid both of these specific instances.

The CFPB is not offering a resolution for either of these issues via disclosure. Nor are they providing a time frame within which to achieve compliance. In fact, they are saying that transaction processing rules are often complex so regardless of disclosure it isn’t reasonable for consumers to necessarily understand how the process works. So, the only resolution for ‘authorize positive, settle negative’ is to stop doing it if that is how your transactions are processed today. Sadly, the CFPB has not yet issued a Rule mandating core processors to add the necessary capability to prevent charging a fee for an item allowed on “good funds.” In addition, some core processors may postpone the creation of the module (or patch), which eliminates the regulatory risk, in the absence of such a regulatory mandate. This will still fall on the financial institution to put controls in place to prevent charging these fees.

The solution on the returned deposit item fee appears relatively simple – if you charge a returned deposit item fee today – stop. The CFPB does offer some guidance on certain circumstances where changing that fee may be reasonable – for example, if a depository institution only charges consumers a fee if they repeatedly deposit bad checks from the same originator, or only charges consumers a fee when checks are unsigned, those fees would likely be reasonably avoidable by the consumer. However, my take on that is it really isn’t worth trying to monitor the specific reasons the fee was charged in each instance. Far easier to just not charge the fee and be sure to avoid the regulatory criticism. Returned deposit item fees really don’t have anything to do with ODP so we’re not familiar with the instance of occurrence, but I assume these fees don’t add up to much for the typical community institution.

Strunk’s recommendations have continued to include clearer wording and open information regarding how fees are calculated. We have actively helped community banks and credit unions address the problems mentioned in the bureau’s advice throughout the years. Strunk often receive feedback from clients regarding issues raised during their examinations. Additionally, we stay in contact with the state and national banking associations’ legal counsel on topics related to overdraft protections to make sure we stay in front of any issues for our clients.

 

Overdraft Protection Programs?

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Several federal regulators have recently come up with “guidance” on how banks should handle the payment of debits that cause overdrafts and whether or not a fee should be levied against the account.

In August the FDIC warned banks that proper disclosure of charging a fee for an item presented a second time is important so that consumers understand that there can be more than one NSF charge on the same item. Even though banks have had the same practice for decades the FDIC is now warning banks of possible UDAAP violations.

More recently the CFPB wants banks to ensure they are not charging a fee for a debit card transaction that causes an overdraft when the item hits the books when it was previously approved at point of sale. Also, banks are warned to not charge consumers a fee for a deposited item that comes back to the account as a NSF item. It is yet to be seen what impact this will have on community banks but this “guidance” from the regulatory body covering banks with over $10B in assets should be reviewed by your bank.

Strunk’s Overdraft Privilege program is nearing its 30th year of existence and it remains a tremendous customer service for those who need it. Returning items unpaid to a merchant only creates havoc for consumers. Likewise, if a consumer wants their debit card transaction paid rather than denied at point of sale Overdraft Privilege can help out. Consumer choice is how banking should work. Providing proper disclosure and ensuring the bank follows the disclosures is key.

Contact Strunk at 800.728.3116 or at support@strunkaccess.com to learn more about how Overdraft Privilege can benefit your bank and your customers.

Hosted ODP Manager and Individual Account Information

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ODP Manager includes the ability to review the account level information for each account that has been imported into ODP Manager from your daily extract file. By using the Account Inquiry section in the hosted software, an institution’s users can view multiple accounts or details of a single account.

In Account Inquiry, users can select the view that contains the necessary columns and select groups or apply filters so only the desired accounts are shown. Once the list of accounts has been created, the data can be exported to Excel to be saved or for distribution. This information can be used to supplement ODP Manager’s existing standard reports. It also may be an alternative to creating custom reporting in the core system about accounts managed in the ODP Manager software.

Account Inquiry also allows access to the information for a single account. Since historical events are retained in the ODP Manager software, details can be viewed for both open and closed accounts. To manage the account, users may need to review an account’s contact information, event history, reminders, or comments. If the account is under a Fresh Start Loan or has charged off, users may need to view the related repayment schedule or charge-off items and recoveries.

Leveraging the information already included in ODP Manager may make it easier for your users to review and manage accounts efficiently. Please contact Strunk Support at support@strunkaccess.com with any questions or to find out more about using Account Inquiry.

 

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.