Rethinking Overdraft Services for Your Credit Union to Remain Proactive

Evaluating your overdraft strategy is a must, especially given the focus and attention from regulators to eliminate risky overdraft practices. Gone are the days of hidden fees and unclear policies.

The NCUA unveiled its supervisory priorities in February, indicating a heightened focus on overdraft and NSF fees. Unlike the previous year's threshold, which targeted credit unions with assets exceeding $500 million, Chairman Todd Harper announced that the NCUA will now scrutinize all credit unions with assets surpassing $100 million.

The stakes have risen considerably as examiners will widen their assessment criteria to include website advertising, balance calculation methods and settlement processes, reasonable and proportional overdraft fees, and the use of technology that authorizes positive and settles negative (AP/SN) or imposes re-presentment fees. Chairman Todd Harper's warning to credit unions reliant on overdraft income further emphasizes the urgency.

With both the CFPB's proposed rule and the NCUA's push to eliminate problematic overdraft practices, reassessing your overdraft strategy has become imperative. Staying ahead by aligning with market demands and regulatory expectations is crucial for sustaining growth. So, how can your credit union stay proactive to meet these evolving expectations?

The solution is simple: provide a fully disclosed overdraft service with fair and reasonable fees. Many credit unions are already leading the way, offering transparent overdraft services to ensure their account holders have access to responsible financial services. It's an approach that resonates with their account holders, who appreciate the transparency and support provided.

Statistics reveal that more than 88% of consumers find it reasonable to be charged a fee for an overdraft. Americans appreciate the service, particularly when important payments, like mortgages or rent, are paid on time. Therefore, the focus should be on evolving your program to meet today's consumers' needs.

Creating a modern overdraft program requires a proactive approach from financial institutions. Here are some steps they can take to ensure their overdraft services align with consumer needs and industry best practices:

1. Fee Practices: Conduct a thorough examination of fee assessment practices to ensure they are transparent and equitable. 
2. Fee Amounts Comparison: Compare fee amounts with local and regional averages to ensure they remain fair and competitive. 
3. Grace Periods: Consider offering a grace period to allow your account holders an opportunity to manage their accounts and take action before an overdraft fee is applied. 
4. De Minimis Threshold: Evaluate your approach to handling small overdraft amounts, which is a responsible way to reduce consumer costs. 
5. Caps on Fees: Implement caps on the number of fees charged per day or statement period to prevent excessive charges.

A transparent overdraft service should be just one of several options available to account holders, empowering them to manage their finances responsibly. For many, it's a valuable lifeline when unexpected financial challenges arise.

At ADVANTAGE, we specialize in helping financial institutions optimize their overdraft programs for maximum consumer benefit. The impact of adjusting your overdraft strategy could be more significant than you might think. Before taking a wait-and-see approach, request a complimentary analysis of your overdraft program, which could reveal new areas of opportunity and help you stay ahead of pending regulatory rules and examiner scrutiny.

Check out our webinar, "Overdraft Overhaul: Insights into the CFPB's Game-Changing Proposal," to learn more about the latest regulatory activity.

Request a complimentary program analysis and contact your local ADVANTAGE representative.