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Sound New Year’s Principles Are Beneficial All Year Long
Monday, January 30, 2017 6:40 AM

By Cheryl Lawson, Executive Vice President, John M. Floyd & Associates

Fairness, Convenience, and Compliance are the Benchmarks of Overdraft Protection
If your credit union’s 2017 goals include increasing revenues and member satisfaction, a fully-disclosed overdraft protection plan may be the solution. A proven plan could fill not only both needs, but also provides fairness, convenience, and compliance to the accountholder and the financial institution.

Overdraft protection exists primarily to solve a common problem: a cash shortfall when a consumer faces a “have or have-not” purchase decision. By utilizing the service, consumers can answer a pressing situation in exchange for a manageable expense—one that’s often remedied within days—and your credit union can increase income from a non-interest category.

If you’re considering adding or adapting an overdraft protection service, let the attributes of fairness, convenience, and compliance guide you to a win-win decision.

Fairness
Fairness is rooted in value and, as it applies to overdraft protection, begins with how the service is initially presented. Consumers should expect a fair program to be one that:

  • is available to all members and does not discriminate
  • has uniform charges with known limits that do not fluctuate with the transaction amount
  • is transparent at every touchpoint, from sign-up to opt-out, so that the member can make a fully informed decision about their level of participation
  • includes consistent messaging throughout the process
  • has the member’s best interests in mind and excludes compensation-based incentives
  • keeps the member up to date from the inception of an overdraft through reimbursement

Convenience
The convenience of overdraft protection applies to both the consumer and the financial institution. For the consumer, that can mean the ease of a standard transaction; the confidence of not needing additional arrangements or alternate, sometimes prohibitively-priced resources; and the discretion between only themselves and their credit union. 

Convenience for the institution can be:     

  • a turnkey system that doesn’t require an upfront investment or create new burdens on staff
  • expenses contingent on income growth
  • a technology platform independent of core systems for monitoring overdraft usage
  • a source of member retention, loyalty, and goodwill—something that uncovers new or unsatisfied needs that can expand the relationship to other services, including borrowing or a line of credit

Compliance
Given the nature of the industry, compliance is non-negotiable. For financial institutions that implement an internal overdraft protection program, compliance can become lax due to turnover or not keeping pace with industry changes.

Compliance is an ongoing process resulting from:

  • a strong emphasis on training prior to launch and throughout the implementation phases
  • a third-party provider who’s constantly learning from multi-client engagements and has external legal expertise that closely follows the industry
  • systems that monitor constantly or on-demand and that can readily provide answers to inquiries by examiners or authorities

Studies have shown that debit cards represent the largest volume of non-cash payments. Given the pace of everyday life and the growing prevalence of electronic banking, an effective overdraft protection service can benefit consumers and financial institutions alike. Consumers can more easily and discreetly resolve unforeseen situations, and credit unions can both earn—and learn—more from their members. For such a program to benefit both parties, consider how a program can meet the thresholds of consumer fairness, institutional convenience, and industry compliance.

About John M. Floyd & Associates (JMFA)
For the past 36 years JMFA has been considered one of the most trusted names in the industry helping credit unions improve their performance and profitability. Whether it’s recovering lost revenue, uncovering savings opportunities, serving your members better, finding the perfect personnel fit or delivering a 100 percent compliant courtesy pay program, JMFA has the right solutions to help you not only meet, but exceed, your goals. We are proud to be a preferred provider among many industry groups, including CUNA Strategic Services. To learn more, please visit JMFA.com or call 800-809-2307.