Leading Vendor Warns Consumers: ‘Be selective on Check Overdraft Programs ‘Room for improvement exists, John M. Floyd tells Consumer Federation attendees.

John M. Floyd, a leading vendor of check (or share draft) overdraft protection programs tells attendees at the Consumer Federation of America Financial Issues Conference to proceed cautiously when selecting or participating in such a program, since some are promoted and managed in a ways that are abusive to the consumer. He indicates the Federal Reserve System may issue new regulatory policies on the subject in 2004.

WASHINGTON, D.C. (PRWEB) December 4, 2003 -- Not all checking account overdraft protection programs are created equal," a leading vendor of such bounce protection programs warned attendees today at the Consumer Federation of Americas Financial Issues Conference. The Federal Reserve System may well issue new regulatory policies in 2004," he predicted.

   John M. Floyd, CEO of John M. Floyd & Associates, Inc. (JMFA) of Houston, a profitability-consulting firm to financial institutions, joined A. William Schenck, III, Secretary of Banking, Pennsylvania Dept. of Banking, and Jean Ann Fox, Director of Consumer Protection for the CFA, on a panel addressing leaders of consumer advocacy groups. The topic was: New Bank Overdraft Policies: How can they better serve the consumer interest?"

     The Federal Reserve System, at the urging of consumer advocate groups, including the National Consumer Law Center, has been reviewing compliance issues concerning share draft and check overdraft programs. Some critics contend the programs need stricter controls under the Truth in Lending Act. On March 28, the Fed decided to make no regulatory changes at that time, but to continue gathering information on the programs.

     Of the nations nearly 18,000 financial institutions, an estimated 1,600-plus offer a variety of formal and communicated overdraft programs, Floyd estimated. The current economy is motivating many more to adopt the service to supplement falling interest income from lending activities and to bolster service fee revenues.

     The public is demanding value-added services like overdraft privilege, and industry surveys show a high level of satisfaction," Floyd emphasized. This discreet service avoids the humiliation of members ‘making good on a check with a valued retailer. Neither the customer nor the merchant loses time or productivity in straightening out an NSF (nonsufficient funds) mess," Floyd says.

     Members dont wind up on retailers bad check lists. They avoid multiple NSF charges from a merchant, or larger late payment penalties on house notes, car loans and tuition payments. They also can prevent negative entries on their credit record or potential visits from law enforcement for inadvertent -- but repeat -- bad checks or share drafts," he added.

     Overdraft programs cover checks that would otherwise go unpaid due to nonsufficient funds (NSF) in an account holder or credit union members account. The privilege also may extend to customers ATM. and debit cards. The account holders are allowed to overdraw their transaction accounts, subject to pre-established limits. The overdrawn account must return to a positive balance every 30 days.

     (The fees charged on NSF checks, $17 to $35 (average $22.50), should not be viewed as short-term loans at exorbitant rates any more than a $20 parking ticket is viewed as a punitive, inflated rental rate when a driver overstays the meter by a few minutes," he argued. The service is a valid, beneficial safety net for many income earners who live from paycheck to paycheck, and who recognize the multiple benefits of a fairly run program."   

Programs Vary…Abuses Exist

     JMFA, founded in 1973, is a leading provider of noninterest income products to financial institutions. The company has installed profit improvement programs in 1,650-plus financial institutions, adding more than $5 billion in increased pre-tax earnings for its clients. The company also has successfully implemented variations of its overdraft privilege program in more than 550 credit unions, banks and thrifts.

     Just this year, banking Associations in Arizona and Wyoming and credit union leagues in Alabama, Florida, Michigan, Mississippi, New Jersey, New Mexico, Texas and Vermont, as well as the Credit Union League of the West (CA, NV, WA, OR) and CUNA Strategic Services, Inc., have teamed with the firm to offer its product, JMFAS OVERDRAFT PRIVILEGE()SM program to their customers and members. (www.jmfa.com).

     JMFAs overdraft privilege program is nondiscriminatory and 100% compliant with federal and state regulations, as well as with recently suggested changes," Floyd stated. But unfair practices -- endemic to the implementation, marketing and management of some overdraft programs – definitely exist.
     Some bounce or overdraft protection programs are discriminatory, over-promote the service, under-educate consumers on its use, and base overdraft limits on a mystery matrix," he confirmed. Some make a practice of paying the largest checks first so that multiple NSF fees will accumulate on smaller checks. Some banks even disguise the overdraft amount as part of the persons available cash in account, surprising customers when they overdraw.
     Financial institutions must adhere to a philosophy of focusing on the accountholders and the members well being by implementing consumer-friendly programs," Floyd contended. Such programs, if not corrected by the offending institutions will trigger consumer anger and rightfully result in regulatory actions."
     Floyd, whose firm expects to install more than 500 programs in 2004, said that a fair, well-conceived and managed overdraft program is a win-win-win for the consumer, the merchant and the financial institution. Automated programs help identify troubled accountholders for valid counseling.
     Financial executives must act conscientiously, and consumers need to use their privileges wisely, not habitually," he stressed. Otherwise, a beneficial and legitimate service will become abusive and abused, lessening its value to all parties involved."

ELEVEN QUESTIONS . . .

Consumers should ask about a check overdraft program.

     Whether dealing with a bank, S&L, thrift or credit union, savvy consumers should ask these questions before active involvement in a check (or share draft) overdraft program. Sometimes known as bounce protection" or overdraft privilege, such programs cover nonsufficient funds (NSF) checks that accountholders or members may write inadvertently or by choice.

1.   Is the program mandatory or optional to maintain a checking account at the financial institution?

2.   Would it be less expensive and/or more convenient to cover overdrafts automatically with funds from a savings account, credit card or through a small personal line of credit?

3.   Fees charged on NSF checks range from $17 to $35 (average $22.50). What fee will I pay?

4.   Is the program offered widely to all customers or members, or is it discriminatory and available only to large account holders and high-income individuals?

5.   Is my overdraft limit a set amount, that is unchanging, or is it determined by a matrix" of checking activity and monthly account balances unknown to the customer or member (me)?

6.   Is my available overdraft amount shown separately and distinguishable from my own account funds when I use an ATM machine, or is it disguised" as part of available funds?

7.   Does the financial institution offer any education or guidelines to wisely using or relying on overdraft protection?

8.   Is the program formally communicated on a frequent enough basis so the consumer has a complete understanding on how the program works?

9.   Does the institution pay the largest NSF check first so that multiple NSF fees accumulate on smaller checks, or does it pay NSF checks in the order they were written?

10.   How long do I have to make the check good" or bring my account back to a positive balance before the NSF check will incur a second penalty fee or additional charges?

11.   If I begin to use the overdraft feature too often, as opposed to routinely living within my income, will I be alerted by the institution or receive any personal financial counseling?

JMFAS OVERDRAFT PRIVILEGE(SM) is a service mark of John M. Floyd & Associates, Inc
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FOR MORE INFORMATION OR INTERVIEWS:
John M. Floyd, CEO, John M. Floyd & Associates, Houston, 800-409-8670 or 281-424-3800;
Web site, www.jmfa.com; e-mail, John.Floyd@jmfa.com

Preston F. Kirk, APR, Kirk Public Relations, Austin TX, 830-693-4447; kirk@281.com