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Your 2018 Overdraft Checklist Should Answer These 3 Questions
Thursday, December 21, 2017 6:50 AM

Cheryl Lawson, EVP Compliance Review, John M. Floyd & Associates

As problem solvers in the financial services industry, we agree that having a checklist is beneficial. Your credit union is bound by order, processes, regulations, and much more. Accordingly, a roadmap of actions can help you serve the needs of your accountholders. They’ll appreciate a logical approach that can help them understand the value of your products and services. More importantly, it will strengthen your relationships with them and have a positive impact on retention.

The same can be said for a successful and fully disclosed overdraft program. By answering yes to the following three items and getting to yes for any that remain, your program can contribute more to your initiative's success.

1. Does your approach encourage accountholder loyalty?
A stagnant regulatory climate or a prolonged period of inactivity or indecisiveness can lead to lax practices and even abuse. Having an overdraft program with dynamic limits, or changing the transaction posting order may be strategies you’ve considered. Unfortunately, they may not only potentially lead to excessive fees for accountholders, but your financial institution could be at greater risk for deceptive practices. Conversely, a fully disclosed approach protects against deception. Fees are established upfront and are well communicated to avoid any confusion. Moreover, it discourages your accountholders from resorting to higher-priced or even unscrupulous or unregulated alternatives.

2. Are accountholders well informed, and do they see value in the service?
If they have never used an overdraft service, they may not even know it exists. Awareness of the program and its accessibility and convenience requires ongoing nurturing. Look no further than the countless studies on consumer behavior. Let’s face it, your account holders often need a gentle reminder about the products and services you offer. By sharing information that speaks to availability, benefits, and fees in the most general, but fully informative terms, account holders are educated so they can make well-informed decisions about their finances. A knowledgeable and helpful staff combined with regular communication breeds overall trust.

3. Does your program increase revenue while ensuring accountholder satisfaction?
Simply raising your overdraft fee is not the solution. While this may lead to a spike in near-term performance, it is often accompanied by accountholder resentment or abandonment. Instead, offering a transparent, fully disclosed overdraft program at a reasonable rate can produce improvements in both revenue and accountholder satisfaction. Value in the form of reasonably priced, user-friendly products and services is the better solution.

When it comes to evaluating your overdraft program, hopefully these must-haves will be on your checklist.

John M. Floyd and Associates is an endorsed business partner of Credit Union Resources, Inc., a wholly owned subsidiary of the Cornerstone Credit Union League.