Complacency is comfortable, but the results can be costly

Posted by Laurie Moore
on "April 10, 2018 11:12 am"

John M. Floyd & Associates Regional Director Jim Griffis,  gives examples of complacency cost when it comes to your overdraft strategy.

There are myriad reasons why organizations fall behind in updating products or improving existing services. Regulatory uncertainty, budgetary constraints, insufficient staffing, technology concerns, outdated business philosophies, and fear of the unknown are reasons I often hear from credit union leaders who aren’t satisfied with their existing performance. Yet they are often hesitant to revisit their overdraft program strategy to increase revenue and improve member service.

But maintaining the status quo in an increasingly competitive industry can have far-reaching consequences. And the results may not only negatively impact the credit union’s performance, but also prove detrimental to its workforce and level of service provided to members.

For instance, while waiting for new regulatory input on overdraft strategies over the past several years, some institutions have allowed their program to become stagnant or decided to forego implementing a compliant overdraft solution until a final ruling was announced. As a result, many existing programs are most likely outdated which creates increased risk for examiner scrutiny and sub-par results. Both can be perilous to reputational and competitive capital.

Here are examples of complacency cost when it comes to your overdraft strategy:

Failure to meet members’ financial services needs

Let’s face it, if you aren’t offering an overdraft service, your members are going someplace else when they need funds—whether to your competition, a high-interest rate short-term loan, a payday lender, or something else. This diminishing your value as their primary financial institution and someone else is benefitting financially from your members.

A disclosed overdraft program offers consumers an option they can use if they need additional funds or make an error in their checkbook. If they don’t use it, they won’t ever be charged a fee. The important thing is, when they do need it, it’s there. That is the kind of reassurance many consumers value today.

Non-disclosed programs risk regulatory and legal exposure

The recent release of the Consumer Financial Protection Bureau’s five-year strategic plan hints at more regulatory stability. While it does not appear the Bureau considers any new rulings a priority at this time, credit unions need to be vigilant in maintaining fully disclosed overdraft procedures.

During the past few years, there has been an increase in consumer litigation against financial institutions for using unfair and deceptive practices, such as:

  • failing to obtain affirmative opt-in consent from account holders before charging overdraft fees on ATM and electronic transactions;
  • utilizing misleading advertising practices that don’t disclose fees;
  • re-ordering transaction processing resulting in maximizing overdraft charges;
  • implementing sales incentives that encourage deceptive product marketing practices; and
  • failing to clearly disclose information on overdraft processing and procedures.

Although it appears no new overdraft regulations are being considered at this time, failure to properly disclose information to members can lead to substantial risk.

Lack of proper training negatively impacts employee morale and program results

I am often surprised when credit union employees share how they present the overdraft program to members during account openings. If not properly trained they are not prepared to explain the program accurately and confidently. They may let personal biases against individual members cloud their willingness to offer the program at all. Such uncertainty can result in frustration for employees who want to provide good service. It can also lead to compliance violations for the credit union if all members are not treated consistently.

Following a recent client training session, I watched as employees walked out of the training room after having that “aha” moment. I could see on their faces that they had gained a new understanding of what an overdraft program means for a member who is dealing with unexpected medical expenses or loss of employment. They realized the importance of offering products based on the members’ best interest, not their own. They understood the importance of fully disclosing what the program is, how to use it appropriately and how much it costs so members can decide whether or not it is right for their situation.

Taking advantage of ongoing, professional training opportunities helps solidify important program aspects for staff. Role-play opportunities help staff learn how to present the program effectively to members.

Maintaining the status quo can lead to mediocrity

While you may think you are earning adequate fee income each month from an existing strategy, what would an extra 25 to 50 percent in non-interest income each month mean for your credit union? Are there things on your wish list—such as updating technology, facility improvements, hiring new personnel—that you have postponed because of budgetary constraints? Are there mobile-based services your members obtain elsewhere because you are stalling on updates or new implementations?

According to information from the Pew Charitable Trust, 12 million Americans take out payday loans each year to cover their financial needs. How many of your members are using predatory lenders when they have a shortfall in funds, instead of relying on your credit union to provide a full range of services? Think about the good you can do to better serve your members’ financial needs while keeping your credit union competitive and top-of-mind in your market.

A commonsense approach to overdraft services reaps the most rewards

A professional overdraft service provider can take a look at your existing program or help you implement a new one. They will make sure procedures are member-friendly, review fees to make sure they are fair and advise on how to maintain effective communications policies that provide the information members need to use your program wisely. They can provide an estimate of your earning potential, guide you throughout the implementation process and provide on-going advice. The revenue stream generated by a well-maintained, fully disclosed overdraft program can support strategic improvements that will enhance member service and keep your credit union competitive for years to come.

ABOUT THE AUTHOR

Jim Griffis is a regional director for John M. Floyd & Associates (JMFA). He joined JMFA with more than 20 years of expertise in sales and marketing strategies, operations, project management and new product implementation. As a Regional Sales Director for JMFA, Jim works with community banks throughout the northeastern states to help them achieve their profitability goals. Learn more about Jim.

ABOUT JOHN M. FLOYD & ASSOCIATES (JMFA)

JMFA has been a League business partner since 2004. For the past 38 years, JMFA has been considered one of the most trusted names in the industry helping community banks and credit unions improve their performance and profitability. Whether it’s recovering lost revenue, uncovering savings opportunities, serving account holders better, finding the perfect personnel fit or delivering a 100% compliant courtesy pay program, JMFA has the right solutions to help you not only meet, but exceed, your goals. We are proud to be a preferred provider among many industry groups, including CUNA Strategic Services. To learn more please visit www.JMFA.com or call 800.809.2307.