Five Overdraft Best Practices for Stronger Relationships


Cheryl Lawson |

An overdraft program that follows industry best practices can help build life-long loyalty. Are you offering a responsible overdraft service that offers value?

According to the most recent survey from Bankrate1, U.S. adults, on average, have held the same checking account for 17.75 years, with adults age 55+ keeping the same account for 24.6 years, on average. Many life events can occur in that length of time, including home purchases, starting a business, building savings, and investing for the long term. And these are all life events that your financial institution can play a part in to build loyalty.

However, nothing happens overnight — sometimes, there are oversights along the way, like overdrafts. But you can have their backs in these times of need. When you have an overdraft (or courtesy pay) service that your account holders can rely on during these bumps in the road, you’re laying a solid foundation for the future.

One negative overdraft experience could cost you an account holder

People have more options than ever before when it comes to their banking needs — and there are likely a variety of offers tempting them to switch. One negative experience with your overdraft service could be why someone walks away.

In order to offer the most consumer-friendly program, you should build the service around and for your consumers. That means it should be:

    1. Easy to understand when it’s explained by your team or in written form
    2. Fully disclosed, clearly communicated and transparent so your account holders do not encounter any surprises
    3. Compliant with all state and federal regulations
    4. Reasonable fees for your market
    5. Valuable enough to consumers to make it worth using

Invariably, your account holders will have unintentional overdrafts and when that occurs, they may need some support. Overdraft programs continue to be a valuable service for consumers, and there’s an opportunity to fulfill an important need.

Regulators emphasize the importance of evaluating overdraft strategies

The FDIC, OCC and NCUA are urging financial institutions to take a closer look at their overdraft programs now if they haven’t already done so.

One of the critical areas includes your practices for clear disclosures surrounding “authorize positive, settle negative” (AP/SN) transactions and re-presentment fees. Plus, you’ll want to provide other alternatives and easy-to-understand options for them to avoid an overdraft fee.

Having a consumer-friendly program starts with carefully reviewing the program through the lens of the consumer. It’s putting them first. If you’re unsure whether your program meets and exceeds the expectations, take a closer look at your strategy, and determine if there is a need to make changes.

How to evaluate and improve your overdraft program

Evaluating, diagnosing, and implementing improvements is the easiest way to get your overdraft program back on track. Keeping your goals, your market and how your account holders currently utilize it in mind, ask yourself:

  • Are our fee amounts reasonable?
  • Do we offer an overdraft threshold (de minimis) to ensure they do not get charged a fee unreasonably?
  • Do we have an appropriate daily cap on fees?
  • Do we offer a grace period that allows them to bring their account positive and avoid a fee?
  • Are our service disclosures clear, updated, and readily available?
  • Is our communication transparent and easy to understand?
  • Does our staff receive the training necessary to properly explain the service?
  • Do we have the resources and tools in place to run an effective and responsible program?

Show your account holders you’re in their corner

Redefining your overdraft strategy will ensure you can deliver on your mission to promote financial health and well-being for them. These and many other best practices can help you deliver a responsible overdraft service that they can rely on.

When you put overdraft best practices into motion today, you’re planting the seeds of trust that can grow into stronger loyalty through all stages of their financial lives.

For more information and to find out how to put your best foot forward in today’s challenging environment to help create more loyalty, download the e-book, “Does Your Overdraft Program Check All the Boxes?”

To learn more about a pro-consumer review of your overdraft program, contact the experts at JMFA to get started.


Cheryl Lawson serves as JMFA’s principal liaison for regulatory requirements of overdraft services, including consumer protection issues and strategies to enhance safety and soundness.

JMFA provides community banks and credit unions with comprehensive overdraft consulting with consumer-focused recommendations, data-driven intelligence, and a 100% compliance guarantee to address your evolving needs. To learn more, contact your local representative or call us at 800-809-2307.


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