Regulators Provide Timely Advice On Overdraft Programs ... Federal Brochure Could Save Consumers Headaches... and Dollars, Says JMFA Consultant

Share Article

Cheryl Lawson, EVP-Operations of John M. Floyd & Associates, the leading consultancy on overdraft programs, praises the five federal regulatory agencies for a recent public brochure on overdraft issues, programs and solutions to avoid overdrawing bank and credit union accounts. She also discusses the changes effective today, Oct. 28, that checkwriters can expect under the new "Check 21" Act, which will begin eliminating the typical 3-5-day float on check clearing. Overdraft programs may save the unwary many dollars, embarassment and lost productivity.

– The five major federal agencies that regulate banks, thrifts and credit unions have released a new brochure, “Protect Yourself From Overdraft and Bounced Check Fees,” drawing praise from a leading consultant on overdraft privilege programs.

“The timing is excellent, since many accountholders are evaluating these popular programs, and ‘Check 21,’ which will cut the ‘float’ dramatically, became effective today,” said Cheryl Lawson, EVP-Operations for John M. Floyd & Associates of Houston. (Photo:

Consumers can obtain the brochure online at There also is a "contact us" link on that Web page that will take consumer questions.

Lawson, who has more than 20 years experience in global information technology and financial operations, consulting, communications and training, attended today’s meeting of the Consumer Advisory Council (CAC), which advises the Board of Governors of the Federal Reserve System. A former employee at Chase Manhattan Bank and Bankers Trust Company of New York, she provided information on overdraft programs to the CAC and spoke to the media.

“This new brochure does not endorse overdraft programs, also known as courtesy pay or bounce protection,” she emphasized, “but it does clearly explain the various options. The key message to consumers is that the best way to avoid fee charges for nonsufficient funds (NSF) transactions such as bounced checks and ATM withdrawals is to wisely manage your accounts.

“Consumers should keep an accurate, current check register, record their electronic transactions (ATM, Internet, ACH) and their automated bill payments, and regularly, carefully monitor account balances,” she noted.

“Fees on overdraft programs, an average of $22.50 in 2003, are typically the same as the institution’s NSF fee. These programs help accountholders avoid additional charges from merchants and the embarrassment of dealing directly with a valued retailer,” Lawson explained.

Floyd and Associates, a 32-year-old profitability consulting firm, was the first company to develop an automated, nondiscriminatory overdraft program in 1988. JMFA has installed variations of its JMFA OVERDRAFT PRIVILEGESM in more than 750 financial institutions. Its founder, John M. Floyd, has spoken extensively coast to coast against the abuses endemic to some overdraft programs as implemented and managed.

The brochure answers basic questions on how bounced checks and overdraft charges occur and how to avoid them. It covers the costs of the various plans as well as alternatives to such programs and how consumers can resolve a problem with the program or file a complaint with a regulatory agency.

“Although the brochure calls the overdraft programs ‘a costly form of credit,’ the Federal Reserve System has ruled that payment of an accountholder’s NSF item is not a loan and not an extension of credit under the Truth in Lending Act,” Lawson stated.

Check 21 May Stimulate Overdraft Programs

The Check Clearing for the 21st Century Act, known as “Check 21,” became effective Oct. 28, with an estimated 5% of the nation’s 18,000 financial institutions expected to take immediate advantage of its provisions, Lawson observed. “And that is going to catch some check-writers off guard. It’s another reason the Fed brochure is timely and welcome and that overdraft programs can be helpful.”

Check 21 allows financial institutions to electronically exchange checks (or “share drafts,” if a credit union) through digital imaging, as opposed to previous requirements demanding physical transport and processing of paper checks. That could cut the “float” – the time between writing a check and the payee cashing it – from as many as five days to a matter of hours.

“By some estimates, the handling of a single check, now as many as 12 times, will drop sharply,” she said. “Financial institutions, now clearing an estimated 40 billion paper checks annually, will have to make a substantial investment in check imaging equipment and processes in the next three to five years. That $10 billion cost could potentially save $2 billion to $3 billion a year.

“For institutions, automated overdraft programs will ease the decisioning burden on paying or returning the accountholder’s check. It also reduces item processing by 10% to 30% and improves non-interest income,” Lawson contends.

“Much of that income is not new, but simply redirected fees from accountholders who might otherwise utilize and pay credit cards, payday lenders, check cashers, etc. for short-term assistance. The federal agencies, the regulators and the consumers should all realize that fact.”


Cheryl Lawson, EVP-Operations, John M. Floyd & Associates, Houston, 866-610-0900 or 281-424-7570; e-mail:; Web site:;

Preston F. Kirk, APR, Kirk Public Relations, Austin TX, 830-693-4447;

# # #

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Preston F. Kirk, APR
Visit website