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Alternative overdraft strategies can create additional challenges for members
By: Cheryl Lawson, EVP Compliance Review

Recent changes in overdraft fee practices at some banks and new product offerings by fintech providers have made a big splash in the news recently. Bolstered by a renewed interest in consumer protection initiatives by some legislators and some speculation of potential changes in regulations, the idea of a “no fee” overdraft solution as a marketing strategy might seem tempting. Especially with the current highly competitive marketplace where many consumers are still reeling from the economic impact of COVID-19, evaluating your overdraft solution should be on your radar.

But before you jump on the “no fee” bandwagon, consider whether the following actions implemented by a very few banks would be good examples of serving your members:

  • Initial overdraft limit of only $20.
  • A $500 monthly direct deposit is required to overdraw an account on debit card purchases.
  • Payments made by check or ACH are not eligible for waived fees.
  • Transactions that would overdraw an account are simply declined.
  • Program eligibility is based on inconclusive data such as account and direct deposit history, spending activity and other risk-based factors.
  • Overdraft limits may change based on unknown algorithms, making it hard for members to know their limit.
  • If an item is returned to a merchant, the fee could be much higher than a typical overdraft fee, i.e., mortgage payments.

 “Member service” shouldn’t come with financial consequences

You don’t hear much about the consequences these new strategies pose for consumers. But merchant fees and late charges due to returned or denied payments can affect members’ credit scores and make it more expensive for them to get insurance, rent an apartment, and more challenging to get a mortgage or even a job. It also can put them at odds with the providers of services they use every day, which can be highly unsettling.

Increase trust with a fully transparent overdraft solution

During times of economic uncertainty, members appreciate knowing their credit union has their back. A fully disclosed, reasonably priced overdraft program that communicates all program details provides members with a reliable option for maintaining financial security when something unexpected occurs or they don’t keep track of their account balance.

Since the pandemic, 43% of respondents to an EY Future Consumer Index survey have changed the way they bank. Factors that will impact banking preferences going forward include transparent practices and their desire to access services from an institution that behaves ethically. Clearly, the importance of member-centricity and providing responsible services cannot be minimized.

Consumer-friendly services that offer multiple options empower members to take control of their finances. Your services should be transparent, without any hidden consequences. Are your overdraft policies and disclosures easy to understand? Do your members know what options are available if they experience a shortfall? Are the fees reasonable? Find out if there is room for improvement and the potential impact of offering a better overdraft service.


Request an evaluation of your overdraft program disclosures today. You’ll gain helpful insight for how to ensure your overdraft solution is member-friendly with meaningful member value.

JMFA is one of the most trusted names in overdraft consulting, focused on communication, transparency and improving client outcomes with a 100% compliant overdraft service. JMFA can help you deliver measurable results with proven solutions. To learn more, please contact Derri Mather @ derrik.mather@jmfa.com   or call us at (800) 809-2307.