In late December 2022, the CFPB issued an order against Wells Fargo requiring the bank to pay back $205 million in “surprise overdraft fees” charged and not reversed since January 2021. These Authorized Positive/Settled Negative (AP/SN) overdraft fees unfairly charged to consumers were one of the several violations across the bank’s consumer product lines that resulted in a combined settlement of $3.7 billion.
Wells Fargo did what many financial institutions have done: put their overdraft solution on ‘auto-pilot.’ Focused program management, proper communication, thorough disclosures and offering a responsible service that puts consumers first are fundamental aspects of overdraft best practices.
AVOIDING THE AP/SN MISTAKE
AP/SN has been a hot-button topic for the past year. After all, as consumers, we often assume that if our account has a positive balance, then we have that money available to spend. Finding out later that a previous purchase hadn’t yet been factored in, and getting hit with an overdraft fee, could be seen as “surprising” and downright “unfair.”
For that reason, examiners are keeping a close eye on financial institutions’ AP/SN procedures and disclosures. The only way to avoid scrutiny and risk is to make sure your program follows best practices to a ‘T.’
THE KEY TO 100% COMPLIANCE
As they say, success (or in this case, compliance) is 90% preparation and 10% execution. That requires a 24/7 approach to staying current on industry changes, making adjustments as needed, communicating properly and keeping staff informed.
Because as consumer and regulatory expectations change, best practices evolve. Staying on top of overdraft compliance can be a big “ask” for a compliance officer or team when they have a slew of other products and services to monitor and dragons to slay. But it’s part of the competitive edge you get with an overdraft expert. A partner with this type of industry insight can help you address issues, avoid risk and advise you on the next steps to make and keep your overdraft program consumer-focused and current.
BIG BANK WORDPLAY
Coincidentally (or maybe not), Wells Fargo announced earlier in 2022 that it will “waive fees for customers using its overdraft protection services.” As you can guess, this comes with many rules, conditions and disclaimers. In the end, they continue to offer overdraft products — they’ve just marketed them in a more consumer-friendly way. Time will tell if their new approach holds up to regulatory scrutiny and consumer expectations.
Instead of relying on wordplay, why not offer a fully transparent and valuable overdraft service to your account holders? A third-party expert in consumer-first overdraft services can help you deliver on your promise to your account holders. Countless community banks and credit unions are offering a responsible overdraft service. And when you do that, you can avoid the regulatory and reputational risks that banks like Wells Fargo walked into.
For answers to all your questions about maintaining a fully disclosed overdraft program, contact your JMFA representative.
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 JMFA’s principal compliance liaison for regulatory requirements of overdraft services, including consumer protection issues, and strategies that enhance safety and soundness.To learn more about how to get more how to deliver a compliant and consumer-friendly overdraft service, contact us.