Overdraft Services Require Explanations

By Tyler Parker and Hal Scoggins07.11.2018

Credit unions could significantly improve service and reduce risk with well-organized contracts that educate members on four key subjects related to overdrafts: actual balance, available balance, how payments are made from accounts, and insufficient funds determination.

1. Actual balance. To appreciate the value of overdraft services, members need a simple explanation of what the “actual balance” in their account is. The “actual balance” is the amount of funds in the account at a point in time based on credits and debits posted to the account as of that point in time. The actual balance does not include checks or electronic funds transfers (EFT) that have been initiated but not posted.

2. Available balance. Knowing the actual balance is only useful in understanding overdraft services when contrasted with the “available balance.” A member’s “available balance” is generally equal to the actual balance minus the funds not available because of holds (for check deposits or debit card purchases). It’s important to emphasize that reductions in the “available balance” arise from the member’s transactions.

3. How payments are made. The contract must clearly explain how items are received for payment and posted to the account. Members should understand that the credit union pays items as they are received, along with how the credit union posts items received simultaneously. Members should also know that the credit union has no control over when checks are presented for payment, or when debit card transactions are transmitted.

4. Insufficient funds determination. It’s critical that the contract explain the connection between insufficient funds and your overdraft services. The credit union offers overdraft services to help members avoid the negative consequences of returned checks or unpaid EFTs when available funds are insufficient to make a payment.

(via Front Line newsletter)