|This article appears courtesy of JMFA, a California and Nevada Credit Union Leagues Business Partner for overdraft privilege services.|
According to BankRate.com, as regulations have increased restrictions on overdraft and interchange fees, financial institutions are finding new ways to make up for lost revenue. In many cases, this has led to new or increased fees for checking accounts and other services.
Consumers seek to avoid additional fees: As a result, it is often necessary for account holders to wade through menus of service bundling or minimum balance requirements to avoid the additional fees. In today’s environment, more and more consumers are rejecting that strategy. A report by Capgemini found that when a consumer decides to switch banks, fees are a deciding factor for 50 percent of survey participants.
In July, the Consumer Financial Protection Bureau (CFPB) released a report that provides insight into the number and type of complaints the agency has received in 2012. While mortgages and credit cards ranked as the highest concerns of the roughly 55,300 complaints received, 15 percent were focused on bank accounts and other services--including confusion about overdraft protection program terms and fees.
As regulations become more stringent, non-disclosed overdraft programs with dynamic limits and practices that cause financial hardship for consumers will pose greater compliance risks for financial institutions. In fact, over the last few years, nearly all of the criticisms by regulators, legislators, and consumer advocates, along with fines and legal action, have focused on undisclosed matrix-based programs and those that implement high-to-low transaction posting.
Disclosed programs offer clear benefits for CUs and their members: While consumers realize that financial institutions must earn revenue to survive, they expect transparency and value in financial products and services.
A fully disclosed overdraft program with clearly defined rules regarding terms, overdraft limits, program processes and how a member may access the service establishes a straightforward approach of responsible use. When supported by easy-to-understand disclosures and counseling on appropriate usage, such programs provide informed account holders with a valuable resource to better manage their finances. And most importantly, no “gotcha” fees or surprises.
The secret to maintaining satisfied account holders is finding the balance between maintaining regulatory compliance and providing reasonably priced products and services that they want and need. When you accomplish that, toasters and other gimmicks are not necessary.
This article is courtesy of JMFA, a Leagues Business Partner. For more information, visit www.jmfa.com or call Candy Sims at 909.212.6016.