Keep your regulatory guard up

COVID-19 will continue to impact the way credit unions conduct business—for months, if not years to come. Effectively navigating an environment of lower interest rates, reduced revenue opportunities, and the added logistics and costs of providing safe working and service environments due to the pandemic will be critical to maintaining healthy performance results. Plus, it will be wise to intensify awareness of increased scrutiny on practices that may cause financial hardship for consumers.

An estimated 885,000 people applied for unemployment assistance for the first time just days before Congress reached a deal on a nearly $900 billion coronavirus relief package. The bill, that was signed by the president on December 27, includes stimulus checks and an extension of weekly jobless benefits through mid-March. As the pandemic continues to surge and restrictions are reimposed in some parts of the country, job security remains a concern for many households. Four out of 10 Americans believe their financial situation will not return to normal until the latter half of 2021 or 2022 and beyond. 

Are changes in store for consumer protection regulations?

With a new administration taking office next month, the initial policy agenda is expected to focus on getting the virus under control and restoring a healthy economy by helping those directly impacted by the recession. As to what direction the new administration may take with regulating banking services, Leandra English’s selection as a member of the Consumer Financial Protection Bureau (CFPB) transition team could provide a clue.

As a member of the original CFPB staff when established during the Obama administration, English was in line to take over the role of acting director when Richard Cordray left the Bureau in 2017. Her appointment to head the transition team could signal that the president-elect may be considering her for the next agency director. And, as COVID-19 continues to fuel economic and employment uncertainty, efforts to boost consumer protection could become more of a regulatory priority.

Avoid increased scrutiny with transparent services, compliant practices and attention to detail 

One way to help your members in these uncertain times is to offer a well-communicated, easy-to-understand overdraft program that adheres to all regulations and best practices. Plus, with added capabilities to monitor account usage, you can provide valuable assistance when it is needed. When providing the funds necessary to pay bills or help cover unexpected expenses, a well-managed overdraft program is an avenue for building trusting relationships with your members. Importantly, it also protects your credit union from potential compliance concerns and helps you avoid the threat of costly and time-consuming litigation from lawyers targeting institutions with demand letters or class-action lawsuits.

For example, litigators continue to actively pursue action on issues related to improper fee charges, the assessment of multiple NSF fees charged on items that are presented multiple times against insufficient funds, as well as practices that are misleading or not fully disclosed. Class-action lawsuits have focused on the assessment of overdraft/NSF fees based on the “available balance,” which factors in any holds on deposits and debit card transactions—rather than the “actual balance” or “ledger balance”—without accurately describing this practice in disclosures. Actions also have resulted from charging fees for POS transactions authorized on good funds but settled after an account balance has been depleted by intervening transactions that caused there to be insufficient funds to pay the original POS items (Positive Swipe/Negative Settlement).

Clear, consistent messages create informed service experiences 

In all of these situations, the lack of clear account information leaves a member unaware and uninformed. The best way to avoid this knowledge void is by committing to transparency and full disclosure with an effective communication strategy. 

As uncertain conditions continue, make sure all deposit agreements, disclosures and policies provide clear, consistent messaging that describes specific details of how your overdraft program works. This demonstrates that you have your members’ best interest in mind, while allowing them to make informed financial decisions and gain confidence in their relationship with your credit union as 2021 unfolds.