Strunk

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.

Reviewing your overdraft privilege program during a pandemic

September 9, 2020/in Banks, Compliance, Credit Unions, Financial Services, Markets, Overdraft Privilege, Perspectives/by Joel Lawrence

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.

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.
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.
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?

April 15, 2020/in Banks, Credit Unions, Financial Services, Markets, Overdraft Privilege, Perspectives, Tips, Uncategorized/by Melissa Newbury

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

April 8, 2020/in Banks, Credit Unions, Financial Services, Markets, Overdraft Privilege, Perspectives, Tips/by Mike Sobba

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

April 1, 2020/in Banks, Credit Unions, Financial Services, Markets, Overdraft Privilege, Perspectives, Tips/by Joel Lawrence

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.