Prepare Now for Coming Changes to Overdraft Revenues

It is time now to prepare for coming changes in overdraft revenues at financial institutions.  The new rules for prepaid cards clearly show the hand of the CFPB in identifying overdrafts as a form of credit.  Two keys required by the CFPB are 1) giving consumers more time to pay rather than repaying all at the next deposit, and 2) assuring the ability to repay is assessed before extending overdraft credit to customers.  Just looking at deposit activity, as many overdraft systems do, is not sufficient and has already been ruled out in advance lending guidance. 

                                 Source: Business Week

Another look at the CFPB’s plans are illustrated by their interest in the Colorado plan on payday loans that many believe foreshadow national rules.  The Colorado rules are in place that require a payday loan to have six months to repay the loan, rather than 15 days.  We think these are clear indicators of where new rules for overdrafts are headed:  better assessment to of the consumer’s ability to repay and a longer term to repay overdrafts.

Financial institutions should begin now to explore how their programs can best operate in the new environment.  They will need systems to assess consumer’s ability to repay, provide loans in an automated way for longer periods of times to and coordination with item fees.  These are exactly the features of PaySound.^®  Call us and lets get prepared.