Provide Financial Peace of Mind For Your Members
By: John M. Floyd, Chairman and CEO, John M. Floyd & Associates
As economic conditions continue to affect the financial well-being of many consumers, it can be tempting for them to turn to unconventional financial products – like pay day loans and cash advances to make ends meet. According to a study by the Center for Financial Services Innovation, an estimated 15 million Americans turned to small-dollar credit products in 2011, with fees paid to access these loans amounting to $17 billion. Critics of these products estimate that the annual interest rate of borrowing money from these alternative sources can range from 400 to 600 percent or more.
By providing your members with a reasonably-priced, compliant strategy that helps them to better manage their finances – such as an overdraft privilege program – you can help them avoid getting caught in a cycle of relying on these “quick cash” products that come with a very high price.
Whether as a result of unexpected expenses – due to illness, home or car repair, and other unplanned circumstances – or an error in reconciling a checkbook, overdrafts can happen to anyone. A fully disclosed overdraft program reassures members that their checks will be covered and their ATM and/or debit transactions won’t be denied. When this translates into the ability to pay one’s mortgage or rent on time, and cover the cost of medical needs and essential services, it can make a tremendous difference in a member’s life.
When supported by easy-to-understand disclosures and counseling on appropriate usage, a compliant overdraft program will give your members informed choices, the service and tools they need to make informed decisions about their account and the peace of mind that goes with it. In the end, it will also strengthen their loyalty to your institution.
Give Yourself Regulatory Peace of Mind
As concerns over regulatory activity remain high, providing a fully disclosed overdraft program also demonstrates to regulators your commitment to compliant programs and services.
Make sure your program provides you with the following:
- an on-going review of materials to minimize member confusion and promote responsible use;
- staff training to ensure employees understand program details enough to confidently explain the benefits and costs to members;
- opt-in requirements for all electronic transactions;
- appropriate daily limits on the number of transactions subject to a fee, or a dollar limit on the total fees that will be imposed per day; and
- member information that provides details about overdraft program alternatives that may be lower-cost and more appropriate.
If you’re not sure your overdraft strategy meets all new regulatory requirements or is providing optimal revenue for your credit union, a comprehensive review of your program may be necessary to bring your program into compliance and help you take full advantage of all performance opportunities.