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NCUA Regulations Governing Overdraft Programs Amended & Finalized

This past April, in the Credit Union Resources Spotlight, Strunk & Associates reported the company was pleased with the new Joint Guidance on Overdraft Programs governing discretionary overdraft services. Strunk Executive Vice President Marc Paine said the guidance was long overdue and should be welcomed by both third party providers and credit unions alike. Since that report, NCUA regulations governing overdraft programs have been finalized. The bottom line for credit unions: NCUA regulations provide a stronger and clearer definition of overdraft services as well as how they will be implemented.

What do these new more clearly defined regulations mean? According to Paine, for those credit unions that haven’t adopted an overdraft program but are considering one now is their opportunity to do it right. If they choose to work with an outside overdraft service provider, they should exercise caution. Two areas are critical. Will their service meet or exceed the guidelines and directives laid down under the new regulations? And, do they have the resources and regulatory expertise to ensure their program is compliant?

Credit unions that have an overdraft payment program in place should take a hard look at it before the regulations take effect July 1, 2006. Use the same criteria as a newly adopted service. Will your current program meet all guidelines and directives and do you know with absolute certainty it is fully compliant? If "I’m not sure" is the answer, Paine recommends taking steps now to avoid problems later.

First of all, have your own counsel or outside counsel review your program. Your data processor is also a good resource. Request their input. If a third party provider implemented your service, don’t assume it was done properly. An overdraft payment program is not a software upgrade. It is an important product that must be well structured and carefully integrated.

When reviewing your program, Paine suggests that credit unions pay close attention to three areas: advertising, marketing and consumer disclosures. These areas are specifically addressed in the new regulations.

Let there be no mistake that under the current regulatory climate, it will not be business as usual. Overdraft programs will be scrutinized and those that are not compliant will be in jeopardy. Federal examiners will look for any program, policy or procedure that fails to comply with the new directives.

At Strunk, Paine says the focus has always been on regulatory compliance when implementing their Strunk & Associates’ Overdraft Privilege^SM Service. That will not change. It’s also why the company serves over 1100 financial institutions in 47 states and the Caribbean.

More information on the company and their services.

September 6, 2005