Overcoming the Challenges of 2012

By John M. Floyd, chairman and CEO, John M. Floyd & Associates (JMFA)

According to most experts, the economy is expected to experience moderate growth in 2012. And while we’re all anxious for conditions to improve, there are still substantial barriers for financial institutions to overcome before the industry returns to conditions that could be described as normal.

Restrictions on Revenue

News that the Federal Reserve is extending its efforts to hold interest rates at near zero into 2014—along with continuing uncertainty in the housing sector—will likely prolong weakened earnings. Plus, a recent industry study found that revenue earned from overdraft programs in 2011 declined 10.9 percent collectively for banks and credit unions from 2010. This is attributed to increased fees and a growing popularity of alternative sources of emergency cash, such as payday lenders, pawn shops, and loans from family and friends.

Clearly, economic conditions continue to pose challenges for consumers, but increased overdraft fees charged by some financial institutions are sending them elsewhere for a financial safety net. By offering your members a reasonably priced overdraft solution, you can protect them from excessive fees, provide them with a proven safety net and substantially improve your bottom line.

Attention to Consumer Financial Literacy Gets Serious

With new director Richard Cordray now in place, the Consumer Financial Protection Bureau (CFPB) is wasting no time in focusing its attention on financial products that harm consumers and make it more difficult for them to maintain control of their finances. The first order of business announced by Cordray is closer scrutiny of nonbank financial services providers, such as payday lenders, check-cashing stores, credit bureaus and debt collectors, that have not previously undergone extensive federal examination of their operations.

And while efforts to level the regulatory playing field are welcomed by the credit union industry, these actions signal the need for increased, across-the-board awareness of practices that are deemed harmful to consumers by heightened regulatory standards.

We’ve known since before the CFPB was operational that regulators would have their sights set on undisclosed overdraft programs. With this in mind, if you want to ensure that your credit union is in line with new regulations before your next compliance exam, ask yourself these questions:

  • Is our overdraft program fully disclosed?
  • Does it monitor excessive usage?
  • Do we have opt-in confirmation from all accountholders who are being charged fees for overdraft coverage on electronic transactions?
  • Do our account holder notification materials include easy-to-understand explanations of our fees and processes?

Compliance Expertise is Essential

Having access to a compliance expert can help your credit union avoid the stress of regulatory uncertainty and lead you through the ever-changing regulatory maze to make sure your overdraft program meets all compliance requirements and exceeds your members’ service expectations. In the end, both your institution and your members will benefit.


Strategic Link is the NWCUA’s wholly-owned service corporation, providing the Association’s member credit unions with exclusive high-quality, competitively-priced products and discounted services. Questions? Contact Sales & Marketing Associate Craig Reed: 206.340.4789, creed@nwcua.org.

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