More than half (57%) of consumers feel they don't need overdraft programs or don't want to pay associated fees, according to a survey conducted by Acton Marketing. This data provides a vivid illustration of the challenges credit unions will face as they inform members of the benefits of overdraft protection and the implications of opting out.
Inform Your Membership
That consumers do not fully understand overdraft protection or the fees associated with such programs is a challenge. The Acton survey found only 28% of bank customers were "absolutely certain" about their financial institution's overdraft program and fees. The media has publicized the impact of a $35 fee, but many credit unions charge a more reasonable fee of $10 or $15. For some consumers, incurring an overdraft fee is less costly than coughing up the fees for late bill payments or payday lenders. Other aspects of bank overdraft offerings, such as processing larger debits first and charging multiple fees, are practices many credit unions have not adopted. However, consumers might not be aware of these differences.
Bank of America's plan to deny overdraft s for ATMs and debit purchases has received attention, but it has continued opportunities for fee income from customers who opt-in to other services. Customers who opt-in to overdraft protection are still charged fees to transfer money from another account. Another option, linking a credit card to overdraft protection, could prove even more costly as cash advance fees and higher APRs apply.
Considerations for Informing Members
As credit unions develop plans for communicating with members, they need to consider the clarifications to the Federal Reserve Board's Overdraft Rules.
- Financial institutions cannot offer incentives to opt-in.
- Financial institutions must offer the same account terms to members regardless of opt-in.
- Members must have an ongoing right to consent and revoke consent.
- The financial institution must provide written confirmation of opt-in.
- Opt-in notices need to be segregated from other information.
These requirements will contribute to higher mailing and marketing costs as credit unions strive to effectively communicate their overdraft program to members. The stakes are high. Credit unions will experience a significant drop in fee income should 57% of current overdraft users decide not to opt-in. There is also a potential for damaging the member relationship should overdrafts fees be mistakenly charged or charges be mistakenly denied. Clearly communicating benefits and associated fees are an important aspect of obtaining member opt-in and ensuring satisfaction when overdrafts are covered.