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Three FAQs on overdrafts and courtesy pay

By Cheryl Lawson, EVP of Compliance Review, ADVANTAGE
February 6, 2023

Recently, I sat down with CUInsight Publisher & CEO Lauren Culp to answer three frequently asked questions about the current state of overdraft services and compliance issues.

Keep reading for the answers to help your credit union offer a responsible overdraft service for your members.

1. Do consumers still have a need for overdraft services?
Our communities are made up of all different types of households. Some people make plenty of money, others don’t earn quite as much as they need in order to get by. Research shows that 3 in 5 Americans are living paycheck to paycheck; and 77% of Americans report feeling anxious about their financial situation. So, there is definitely a need for consumers to be able to turn to their financial institutions for support in the event of a short-term need.

Also, small overdrafts represent no significant loss to financial institutions. But offering the service does build a brand relationship and loyalty. And that’s extremely important for community banks and credit unions, whose account holders have come to see them as a partner in their financial health.  And as a partner, you don’t want to turn someone away at a time when they may have a short-term need.

2. What should community credit unions consider as they evaluate their overdraft position?
Your overdraft solution must be totally compliant. It has to address everything the examiners are going to ask for—and more.

It also has to address the needs of consumers. After all the changes in the industry in the past 15-20 years, we finally have a much clearer direction from the FDIC, NCUA and other agencies on exactly what they want to see in strong overdraft programs. And that is: transparency, consistency, fairness, making sure that consumers have the ability to turn it off, etc.

The pressure is on financial institutions now to not just provide an occasional service, but to consistently ensure that consumers are benefiting from it (and not harmed in the process).

Speaking from years of personal experience, the past year has seen more activity in the overdraft space than pretty much any other time I can recall. Authorize Positive, Settle Negative (APSN) and Re-presentment fees are being heavily scrutinized. Your program must follow best practices to a ‘T.’ You can’t do it halfway or fix it as you go. A standard review won’t deliver the perfection you need. The optimal solution is to work with a partner whose sole focus is to monitor and manage every single aspect of your program, 24/7.

When you stay ahead of the game, and you know you’re providing a value-adding, relationship-based service to your account holders, you don’t have to sweat regulatory exams or industry changes.

3. How does ADVANTAGE help financial institutions navigate regulatory expectations?
ADVANTAGE provides a 100% compliance guarantee for our overdraft program, which no other industry partner does. And we’ve done that for years because we know everything that needs to be included in your program and we ensure that you implement our recommendations.

What does that guarantee mean? If an examiner walks in and says, “You’re not doing something perfectly,” it’s ADVANTAGE's dollars that are on the line. We pay any fines stemming from written communication penalties. The telling news is, in 25 years we haven’t had to pay any fines, because we’ve always delivered a 100% compliant solution.

Plus, when new issues arise —like now, with APSN and re-presentment fees – we’re able to very nimbly respond and assist our clients so that they’re ahead of the game and they get everything done before the examiner walks in the door.

The bottom line is that overdrafts are not the enemy. Account holders want and need this service from time to time, to keep their lives moving—and you want to be there to assist them. ADVANTAGE is here to help you deliver a non-discriminatory, fair and compliant service they can rely on.

Our solutions are tailored to each financial institution we work with—it’s not a kit, you can’t mail it in a box. We spend time one-on-one with each client to build a lasting partnership. In the end, our goals are the same as yours: to make the marketplace better and to support households through thick and thin.

Are you confident your overdraft program is operating at 100% compliance perfection? If not, ADVANTAGE is here to help get you there. 

About the Author

Cheryl Lawson has more than 30 years of experience in information technology and financial operations, as well as consulting, communications, training and project management. She serves as ADVANTAGEs principal compliance liaison for regulatory requirements of overdraft services, including consumer protection issues, and strategies that enhance safety and soundness.


ADVANTAGE, powered by JMFA, is dedicated to empowering financial institutions with strategic solutions for growth and success. Our comprehensive services include overdraft program consulting and compliance, checking account acquisition strategies, contract negotiation expertise, and consulting for technology strategy, evaluation and selection. With a rich history of serving credit unions nationwide, we are committed to delivering exceptional value and fostering long-lasting partnerships. Choose ADVANTAGE, to elevate your performance, identify new opportunities, and build more value.