Last month, Strunk & Associates' President Sam Davis analyzed the recent hearing conducted by the House Subcommittee on Financial Services and subsequent negative media coverage surrounding overdraft protection services. One particular statement made by Sam Davis merits repeating. He warned, “ It is very important to note that if consumer advocate extremists and some in the media have their way, well-run, responsible overdraft programs could be eliminated, resulting in higher costs and significantly reduced service to the consumers and your members. ”
During the past decade, the regulatory approach to management of overdraft payment programs and other innovative financial services has gradually changed from a collaborative environment to one that presently is describe by many in the financial community as both confrontational and skeptical. This change in the regulatory dynamics affecting financial institutions today was well demonstrated to even the casual observer during the House Subcommittee on Financial Services' July 11 th hearing on financial institution's overdraft practices.
Previously we have discussed the challenges credit unions face due to declines in net interest income. We've brought out the fact that in order to “survive,” many credit unions have introduced non-interest, fee-based programs and services such as overdraft payment to compensate for decaying interest income revenue streams. Indeed, for many credit unions, non-interest income from programs such as discretionary overdraft payment services have become an essential source of income – a source often necessary to continue to operate and serve their members. Now it appears that to “survive,” credit unions must go one step further – protect their overdraft payment program (and for that matter, other innovative programs) from unwarranted loss by consumer advocate extremists.
Reassess Your Regulatory Initiatives
Most responsible credit unions offering overdraft privilege have invested in compliance and “best practices” mandated under these defining rules of conduct. However, credit union managers should keep in mind that in the current political climate, it's likely that their overdraft protection programs will be under increased scrutiny. Make sure it complies fully with federal guidance and all rules and regulations.
Additionally, the regulatory environment as it applies to overdraft payment programs is in a state of flux. Regulators at both the federal and state levels continue to demonstrate that they are quick to respond to “ultra-conservative” or “worst possible case” portrayals of potential overdraft protection program abuse; as consistently alleged by some consumer advocates, media, and “self-styled” experts.
What may have been compliant last year may no longer be fully compliant today. We work with credit unions on a daily basis, and we continue to see that many are not as compliant as they should be and do not have the up-to-date best practices in place that regulators and examiners expect.
Rather than overreact to negative publicity, we suggest a calm, logical, and objective approach in analyzing your overdraft protection service and making sure it's designed to be fully compliant with federal and state guidelines. “Coming close to being fully compliant” is not enough. The best way to accomplish this is to work with an expert who understands all aspects of a compliant program. Remember; interpreting and implementing new overdraft protection guidance and often-conflicting interpretations concerning regulations and rule changes is a perpetual effort. New rules, regulations, directives, and court decisions continue to evolve, creating a never-ending source of compliance issues and requirements.
In spite of your very best efforts, it is not reasonable to expect that you and your staff can know all of the important details, all of the time , for proper “Due Diligence” and “Best Practices” in your overdraft protection program – especially when you, and they, have many other duties and responsibilities. If your employees are inexperienced in dealing with evolving overdraft protection regulations and best practices, important issues may slip under your credit union's radar. Under today's rigid compliance standards and stiff enforcement penalties, such “oversights” can result in punitive consequences. This business absolutely requires dedicated and expert focus on hundreds of critical details. Frankly, “part time” expertise and “generally compliant” programs are exactly what the consumer advocates, the media, and the regulators are correctly criticizing.
We urge you to routinely undertake rigorous self-examination and evaluation of your overdraft protection programs, policies, procedures, staff training, and the proper resources to determine those areas that likely require legal, compliance, and operational improvement.
Seek Genuine Expertise
At Strunk & Associates, our personnel and regulatory teams focus every day on the dynamics of compliance issues that affect your credit union. We're proud of our regulatory expertise. It's why our clients are provided with the most comprehensive, reliably compliant, “How, When and Where?” solutions in the industry -- including the most current and fully compliant sample disclosures, procedures, policies and other required documentation and materials. We prepare our clients to meet current regulatory requirements as well as establish an ongoing support system that prepares them for future regulatory challenges.
For more information about the Strunk & Associates' Overdraft Privilege SM Service Program, call us at 1-800-728-3116 or go to our web site at www.strunklp.com .