Pub. 2 2014 Issue 1
winter 2014 21 In today’s highly regulated environment, maintaining compliance requirements can be challenging; but it must remain a priori- ty to avoid increased regulatory scrutiny. As the industry anticipates the CFPB’s final ruling on overdraft programs, you can ensure that your overdraft processes and procedures are compliant with all regula- tory and consumer protection concerns by providing the following: • complete transparency regarding fees and program procedures; • clearly established overdraft limits; • transaction clearing policies that avoid maximizing overdrafts and related fees created by the clearing order; • the ability to easily monitor excessive usage; and • communication materials that outline alternative financial products that more appropriately fit the needs of excessive overdraft users. This simple combination will result in fewer regulatory concerns and stronger account holder relationships; along with the ability to maintain a healthy bottom line without having to raise fees or initiate new service charges. n JMFA, an Associate Member of the Utah Bankers Association, is a leading provider of profitability and performance-improvement consulting. For more than 35 years, JMFA has been recognized as one of the most trusted names in the industry, helping financial institutions enhance their bottom line with programs like JMFA Overdraft Privilege®. JMFA is also recognized for earnings enhancement and expense control programs, training, recruitment services, as well as product, service, pricing and technology-improvement consulting. Simply stated, JMFA’s programs and services are designed to increase in- come or reduce expenses. JMFA is proud to be a preferred provider among many industry groups. To learn more about JMFA, please contact Mark Kenney, JMFA regional director, at Mark.Kenney@JMFA.com or by phone at (303) 460-3999. A fter months of speculation regarding regulatory oversight of consumer financial products, the Consumer Financial Protection Bureau (CFPB) released the initial results of its 2012 inquiry into overdraft programs in June 2013. Based on information received from banks in its initial study survey, along with feedback from the public, the CFPB an- nounced that it will continue to study the issue before addressing any policy changes. And while CFPB Director Richard Cor- dray affirmed that overdrafts can provide consumers with needed access to funds, he expressed concern about program poli- cies and procedures that can be “highly complex and difficult for consumers to understand, yet greatly affect whether and how often an account holder will incur overdraft fees.” According to the CFPB study, there is a significant difference in the procedures used by banks to determine when a transaction might overdraw a customer’s account and whether or not the customer would be charged an overdraft fee. These include: • when a bank provides funds avail- ability on deposits; • how a bank treats holds on funds in connection with debit card transac- tion authorizations • what transaction posting order is used; • how overdraft limits are set; • whether a bank offers waivers or delays in assessing overdraft fees to accounts for de minimis transactions or short negative balance periods; • how a bank promotes enrollment in automatic transfers from linked de- posit accounts or credit lines to avoid overdrafts; and • how a bank screens new account applicants. While nothing in the report implies that banks should be precluded from offering overdraft coverage for account holders, the CFPB plans further analysis of its find- ings regarding the number of consumers who are incurring heavy overdraft fees or account closures – along with the wide variations in practices and procedures used by financial institutions – to determine whether they are harming consumers. Compliant financial products provide a valuable consumer resource While some may view the frequent tendency to overdraw a checking account as a lack of financial sophistication or even lack of judgment, it is important to remember that many Americans struggle financially and rely on alternative finan- cial services regularly to accommodate unexpected expenses – or merely to make it until the next pay day. According to a survey released by Bank- rate.com, nearly three-quarters of Amer- icans are living paycheck-to-paycheck, with little to no emergency savings. Fewer than one in four surveyed had enough of a cushion to cover unexpected medical expenses or other emergency situations. A fully disclosed overdraft program that clearly defines the rules by which an ac- count holder may access an overdraft ser- vice establishes a straightforward approach of responsible use and helps customers avoid less attractive choices of meeting their liquidity needs, such as deferring bill payment or resorting to payday lenders. Protecting your customers and your bank with full disclosure CFPB Releases Initial Overdraft Study Results Full disclosure and transparency remain standard requirements for overdraft programs By John M. Floyd, Chairman & CEO, John M. Floyd & Associates (JMFA)
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