Strunk

Don’t Take Your Eye off of your Overdraft Program

June 22, 2022/in Banks, Credit Unions, Financial Services, Markets, Overdraft Privilege, Perspectives/by Kristi Daly

With all that is going on in our world, it is more important than ever before for the community financial institution to stay focused on the overdraft programs they offer. Account holders that utilize these programs and follow the guidelines properly should not fear that they will lose access to a valuable benefit of their checking account. There are several things that should be considered when administering an overdraft program.

Strunk’s ODP Manager offers helpful information that your organization can use to properly run a successful program. The Status Tracking report has information on the annual dollar amount of overdraft fees charged per active checking account and the annual amount of NSF fees charged per active checking account. Your organization is able to separate out OD fees from NSF fees through the daily file that is uploaded into the software. The program is also able to track waives and refunds so that your organization may track fees charged versus fees received. This would also help to capture the total annual dollar amount consumers receive in overdraft coverage compared to the amount of fees charged.

Strunk Heavy OD Users report will illustrate the prevalence of frequent users of overdraft. The Utilization Analysis and Opt-In Impact reports show the share of active checking accounts that are opted into overdraft programs for ATM and one-time debit transactions and those that have limits on their accounts.

Please contact Strunk at support@strunkaccess.com to see how ODP Manager might assist your organization in running a more effective and efficient overdraft program.

Overdraft Privilege Provides a Solution for Charging Multiple NSF Fees

May 18, 2022/in Banks, Compliance, Credit Unions, Financial Services, Markets, Overdraft Privilege, Perspectives, Vendor Manager/by Joel Lawrence

When a merchant transaction is presented for payment from a consumer account and is refused due to the customer’s insufficient funds to cover the transaction, financial institutions typically charge an NSF fee. When a merchant tries to present the same transaction again in order to recover the denied funds, he or she may be charged a re-presentment NSF fee. If a depository institution receives this type of repeated merchant payment transaction more than once, the depository institution may levy multiple NSF fees. If an Automated Clearing House (ACH) or other item is presented for payment and is denied owing to insufficient funds, certain financial institutions will levy an NSF fee for both the original presentment and each subsequent representation.

In recent class action lawsuits against financial institutions, the removal of key clauses pertaining to the assessment of representation fees was considered to be a violation of contract. Some lawsuits have been settled, with customers receiving refunds and legal fees. Additionally, state, and federal financial regulators are reviewing DDA agreements searching for potential legal, regulatory and UDAP risks. With these potential risks it is important to review your deposit disclosures and contract language to ensure the way NSF fees are charged is being communicated clearly and consistent to what a consumer could reasonably expect.

This is a great time to make sure that you review your accounts and all of your customers/members that are eligible for Overdraft Privilege should be added to the ODP program unless they have opted out of the program. By doing this it will minimize your risk for NSF fees being represented, because if your customers/members have an Overdraft limit their items will be considered for payment instead of returned. Paying the item instead of returning it will ensure that the financial institution minimizes its risk for NSF re-presentments because the item is not returned. Also, overdraft privilege provides a better service to your customers/members because they will not be faced with potential late fees, retailer fees and damage to their credit from returned items.

The Importance of Employee Training for your Overdraft Program

April 20, 2022/in Banks, Compliance, Credit Unions, Financial Services, Markets, Overdraft Privilege, Perspectives/by Joel Lawrence

Does your front-line staff have a biased opinion regarding overdraft privilege and present it in a negative tone? Is your front-line staff having a hard time explaining overdraft privilege to your customers/members and not really sure what to say to them? If you haven’t had a chance to listen to your employees’ present overdraft privilege to your customers/members, especially Reg. E, Strunk recommends doing it now. Your staff should explain overdraft privilege and its options to your customers/members in a clear, consistent, compliant, and impartial way.

Sometimes front-line employees do not understand the true benefits overdraft privilege can provide to the customer/member. Some employees often have a bad perception of overdraft privilege because they associate it with disgruntled or confused account holders. This misunderstanding is one of the main reasons why overdraft privilege training and education are so important! It is important to provide your employees with a script on how to present overdraft privilege and the benefits of opting into Reg. E. Employees that have practiced and memorized a customer/member-focused overdraft privilege and Reg. E script, ensure that the approach is compliant, succinct, and easy to grasp.

Using the technique of allowing the customer to choose how the financial institution should manage a transaction that would overdraw the customers/members account before the due date ensures their happiness and loyalty. Strunk’s Overdraft Privilege training will provide a clear understanding of the overdraft program and provide consistent talking points to your employees. After overdraft privilege training your employees will be equipped with correct and thorough knowledge regarding your program. Strunk will ensure your employees are equipped with a non-biased, clear and compliant script that provides account holders accurate information so they can make the best decision possible for their situation. Overdraft privilege training will increase your employees’ confidence as a result of this approach, which will boost their performance, productivity, and level of service to your customers/members.

The consumer case for overdraft privilege

March 2, 2022/in Banks, Credit Unions, Financial Services, Markets, Overdraft Privilege, Perspectives/by Joel Lawrence

The last few years lawmakers have put extensive focus on overdraft privilege programs and are pushing for additional guidance on the way financial institutions handle overdrafts. It seems that the lawmakers that are pushing for changes only have one way of looking at overdraft privileges, so The American Bankers Association (ABA) wrote a response to the two overdraft research reports that the CFPB issued on December 1, 2021 with some additional data.

First, lawmakers have pushed the narrative that consumers do not want overdraft privilege and that the CFPB constantly gets complaints regarding overdrafts. The facts show that in 2020 less than 0.15% of CFPB complaints were related to overdrafts. The ABA reports found that 90% of adults find their bank’s overdraft protection valuable and that 23% of consumers intentionally overdraw their account to cover expenses. A Morning Consult study found that ½ of Americans think overdraft fees are fair and Curinos research found that 62% of consumers would reconsider their support for new regulation of overdraft if it limited access to the service.

Additionally, lawmakers believe that overdraft fees are not fair and are very expensive for consumers. The ABA reports show that 62% of adults state overdraft fees are reasonable while only 21% state that overdraft fees are unreasonable. Also, in the ABA report it states that 72% of adults were happy their payments were covered. The CFPB and lawmakers believe that low income consumers suffer the consequence of overdraft fees more than those who are financially comfortable by a large margin. The recent ABA report found that 25% of adults say they have paid an overdraft fee in the past year and that consumers across income brackets are equally likely to have paid an overdraft in the past year. Post-grads are more likely to overdraw their account than regular college degree or those without a college degree. According to an article that Indeed posted in 2021, employees who have a post-grad degree make well over double than that of an employee who only has a high school diploma. The ABA reports found that lower-income households (<$24k annual deposits) avg 10 items paid into overdrafts annually versus 18 items for consumers in the highest income stratum (>$60k annual deposits). Another point that the ABA report highlights is that lower-income consumers receive more fee waivers and refunds than higher-income consumers.

Before any new regulations around overdraft privilege are done, lawmakers need to look at the economic impact that such action will cause. Currently overdraft users realize an economic benefit of over 7 to 1, providing annual stimulus to the economy of $65.6B. Without overdraft privilege consumers lose $443 in purchasing power for each returned check or ACH transaction. Some larger financial institutions have made changes to their overdraft privilege programs due to fear of potential changes in the regulation and because of competition. The banks that have already announced changes are expecting hundreds of millions of dollars in lost revenue. How will these financial institutions make up for this loss of revenue – will they increase other fees or will they have to decrease staffing to meet stockholders’ expectations? Only time will tell.

Overdraft Protection In a New Light

January 26, 2022/in Banks, Credit Unions, Financial Services, Markets, Overdraft Privilege, Perspectives/by Joel Lawrence

Over the past year, there has been a great deal of scrutiny surrounding overdraft privilege programs. Many news articles focus on the potential negative aspects of overdraft privilege programs. They make the generalization that users of these programs are not sufficiently educated on what usage truly means and that users are typically lower-income.

A 2019 survey from Fiserv shows that 91% of consumers report that they are familiar with their financial institution’s overdraft policy. Strunk has historically stated that clear communication with consumers regarding key elements of the financial institution’s overdraft privilege program is not only important from a compliance perspective, it will also improve program performance. This allows consumers to be more familiar with the program features and limits.

A research paper published by The American Bankers Association provides statistics that show the inconsistencies in data that most articles use characterizing heavy overdraft users as lower-income consumers. The paper states that lower-income households (<$24,000 annual deposits) averaged 10 items paid into overdraft annually vs 18 items for consumers in the highest income level (>$60,000 annual deposits). Lower-income account holders receive more fee waivers and refunds than higher-income consumers and paid lower effective average overdraft charges. Either way, this study shows that consumers of all income categories utilize overdraft programs.

Another argument commonly made in regards to overdraft programs is that consumers find the fees unfair. A common example given that usually describes an overdraft activity is a consumer might buy a $2 cup of coffee and get hit with a $35 fee. In reality, the average size of a purchase that triggers an overdraft fee has nearly quadrupled from $50 to almost $200 in recent years. It is simply not accurate that consumers are getting charged for small purchases. Additionally, a Morning Consult study found that about half of Americans think overdraft fees are fair.

A study by Curinos research found that more than 60% of overdrafts come from consumers who intend to use the service. Likewise, more than 80% of overdraft transactions come from consumers who opted-in to debit card overdraft transactions (Regulation E) with the clear intention of using it to cover their payments. Furthermore, two-thirds of consumers indicate that, while overdraft can be expensive, they don’t want to see reductions in their access to the service or limits. This indicates that consumers understand that if they overdraw their account, having the financial institution pay the overdraft item for them and charge them a fee is a greater benefit to them than returning that item and still charging the consumer a fee. This prevents the consumer from having to pay additional fees to the retailer and potential re-presentment fees.

Less than .15% of complaints to the CFPB were related to overdraft privilege in 2020. Overdraft privilege programs give consumers services that they need and want while also giving them options, which is best for all consumers.

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

December 8, 2021/in Banks, Compliance, Credit Unions, Financial Services, Markets, Overdraft Privilege, Perspectives, Tips/by Melissa Newbury

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.

Finding the way through Regulatory Requirements

November 17, 2021/in Banks, Compliance, Credit Unions, Financial Services, Markets, Overdraft Privilege, Perspectives/by Joel Lawrence

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.

Employee Overdraft Privilege Training

May 26, 2021/in Banks, Compliance, Credit Unions, Financial Services, Markets, Overdraft Privilege, Perspectives/by Joel Lawrence

As more and more states are reducing their Covid-19 restrictions, we are seeing an increase in employees from financial institutions going back to face-to-face work environments. As workers start returning to their workspace in a safe fashion, this is a great time to have some additional training with your employees regarding your Overdraft Privilege program.

Strunk offers ODP training that is specific for your financial institution. With each session tailored to your financial institution we can help identify issues that you may be having with your program while also ensuring that your employees fully understand the benefits of the overdraft privilege program. During this ODP training will review how to fully explain the ODP program to customers/members and this will prepare your employees to answer questions that they may receive regarding the program. The ODP training is excellent for both new staff that needs to learn about the service as well as a refresher training for other employees.

Another important item that Strunk covers with its training is the compliance perspective surrounding the program. We are all aware that Overdraft Privilege has been under the microscope of the CFPB, and we would like to make sure that your financial institution stays safe from any regulatory issues. Strunk’s training can be done in person and is still being offered as a webinar, which gives financial institutions the flexibility to choose how they would like their staff to be trained.

If you would like additional information on Strunk’s employee Overdraft Privilege training, please feel free to contact us at 800-728-3116 or info@strunkaccess.com.

Reg E Opt-In Communication Options

November 12, 2020/in Financial Services, Markets, Overdraft Privilege, Perspectives/by Melissa Newbury

How are you communicating with your customers that have not yet opted in for Regulation E to choose ATM and everyday debit card coverage for Overdraft Privilege?

When the information is included in the extract file, ODP Manager can determine whether an account has already opted in or has not yet responded with a Reg E election. This allows you to provide specific letter content that tells the appropriate customers that they have an option to authorize Overdraft Privilege for ATM and debit card transactions. The Welcome and Reinstatement letters sent when a limit is assigned or reinstated can include the Consent Form for Overdraft Services and can inform the customer of other options to opt in: online, in person, or by phone.

For your customers that have already opted in for the ATM/everyday debit card coverage, the letters tell them that they already have the benefit of having those transactions covered by ODP.

Once you have assigned a limit do you periodically remind your customers that they have the ability to cover their ATM/everyday debit card transactions using ODP? The ODP Manager software can identify which customers have not opted in and have an OD limit, in addition to other criteria. You can send letters to these customers that explain the Reg E opt-in benefits and opt-in methods and that provide a consent form. This allows you to communicate with these customers on an ongoing basis, not just when the overdraft limit has been assigned.

Please contact Strunk Support at support@strunkaccess.com to add the Consent Form for Overdraft Services to your ODP Manager letters or with any questions.