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Full Disclosure Remains Key to Maintaining Compliant Overdraft Programs

A year after the release of a white paper that summarized its initial findings from an analysis of overdraft practices used in nine large banks, the Consumer Financial Protection Bureau (CFPB) has changed the date for further pre-rule activities on overdraft programs to February 2015, according to its Spring 2014 rulemaking agenda.

As the CFPB continues to study whether rules governing overdraft and related services are warranted, and, if so, what types of rules would be appropriate, it is imperative for financial institutions to maintain best practices and avoid the type of procedures that were identified in the CFPB’s white paper as harmful to consumers. These include policies that determine how account holders opt in to overdraft coverage for ATM and one-time debit card transactions, overdraft coverage limits, transaction posting order, overdraft and insufficient funds fee structure and involuntary account closures. 

With the implementation of new consumer protection regulations and restrictions on charging fees for overdrafts resulting from ATM withdrawals and one-time debit card transactions (Reg E), many existing overdraft programs are outdated or obsolete. To provide account holders with the most up-to-date overdraft solution, programs should include the following:

  • updated communications materials for account holders to fully understand the benefits of the service and how to use it responsibly;
  • improved analytics, and more robust data monitoring and analysis to support better program management; and
  • strong reporting and tracking capabilities to measure program performance and implement any necessary improvements.

Be proactive. Recover lost revenue with a compliant program. 

As a preferred provider of 100 percent compliant overdraft solutions for more than 25 years, JMFA is on the forefront of consumer education programs and a proponent of financial institutions having fully disclosed overdraft programs. This includes implementing the following program safeguards:

  • reasonable, communicated fees;
  • clearly established overdraft limits;
  • transaction clearing policies that avoid maximizing account holder overdrafts and related fees created by the clearing order;
  • the ability to easily monitor excessive usage; and
  • communications materials that outline alternative financial products that more appropriately fit the needs of excessive overdraft users.

In response to the government changing the rules—making most overdraft programs obsolete—JMFA has built an all new overdraft program that includes all new analytics, all new strategies, all new communication, and all new reporting and tracking to enable institutions to stay compliant and recover lost revenue.

JMFA compliance experts meet with regulators.

Earlier this year JMFA’s compliance experts had the opportunity to meet with members of the CFPB. Topics of discussion included how fully transparent, disclosed overdraft programs provide a valuable resource for consumers when they experience financial difficulties. CFPB members appreciated the opportunity to learn more about how JMFA OVERDRAFT PRIVILEGE® works. They were receptive to JMFA's consumer education materials, as well as the ways the program helps financial institutions avoid risks. 

For additional information, please contact JMFA at 800.809.2307, or request a free program analysis. You may also contact your MCUA field representative.