A Cautionary Tale: Don’t Put Important Service Initiatives on Auto-Pilot12.04.2017
Conviction in your operations model is essential to establishing credibility and assuring both current account holders and prospects that you “know your stuff” when it comes to offering reliable financial services. But as the marketplace and regulations change, it’s important not to let overconfidence influence you to operate under outdated policies or misinterpret regulatory expectations that can knock you off your game in regard to compliance.
For instance, when was the last time your overdraft program was reviewed and evaluated? You may think everything is fine if no new policies have been issued and it is generating income. But, if you are allowing your program to operate with little or no additional oversight, you could be setting yourself up for potential missteps or even outright violations that can result in added regulatory scrutiny or costly fines.
Real-World Situations and the Consequences
In today’s world, compliance concerns are near the heart of just about any financial product or service. If you haven’t had any complaints or examiner criticism recently, you may think you are doing a great job. But regulations and best practices have changed over the years, as have the ways consumers access their accounts.
I recently met with an institution that had stopped sending overdrawn account status notifications to account holders, except for collection letters. When state regulators came to the institution, one of the examiners noticed that mailings were not being sent to heavy overdraft users. They told the program administrator that because the institution had not done anything to communicate with these program users, it was going to have to refund the fees charged to these accounts.
Had they simply continued to the proper notifications as per their established communications plan, they could have shown the examiner their efforts to notify these account holders of their account status and provided helpful information on other options available to help them reduce the number of fees they were paying.
In another instance, an institution allowed one account holder to overdraw their account more than 100 times with their debit card without paying any NSF fees because they had declined to opt-in to Reg E. Meanwhile, an account holder who had opted in for the extended coverage was paying a fee every time they overdrew their account with a debit card purchase. During its exam, the institution was cited for allowing accounts to exceed their overdraft limits, without officer authorization. What’s more, in the exit report, the institution was advised to rectify these situations to avoid the appearance of “disparate treatment” of its account holders—which could have caused it severe reputational damage.
The Difference Is in the Details
A successful, compliant overdraft program is the sum of its parts. While you may be up-to-date on certain policies and procedures, if one aspect of the program is out of sync, it can have a negative impact on your overall success. And failure to provide consistent, accurate program information; overlooking opportunities to offer advice and alternative services to heavy overdraft users; not following established policies accordingly may lead to treating account holders differently or increasing their costs, can put you at risk for compliance violations.
A professional review of your program can uncover issues you never dreamed of or details that you thought were too small to address. Knowledgeable consultants can take an unbiased look to make sure your periodic statement disclosures and communications materials are compliant; ensure your fee and waiver policies are consistent for all account holders; help you determine if you have unauthorized overdrafts that need to be addressed; and much more.
Cheryl Lawson is executive vice president of compliance review for John M. Floyd & Associates, a consulting firm that helps credit unions improve their performance and profitability.