Marketing OD Services to Overdrawn Customers

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Question:

We do a lot of targeted marketing in our bank. Our operations and marketing departments have approached our compliance team with a proposal to market our overdraft service to customers who don't yet have the service, but have had checks returned for insufficient funds in the last six months. Currently, this service allows qualified customers' accounts to go overdrawn by from $200 to $300 provided they cover their overdrafts within fourteen days. We would market it in two layers, with an option for customers to accept basic coverage for checks and ACH items only, and another to accept coverage for checks, ACH and ATM/debit card transactions. We will include all the compliance disclosure, opt-in and confirmation requirements for card transactions required by Regulation E. Are there any compliance concerns related to targeting this marketing to that group of customers?

Answer:

There could be concerns, depending on how you design your marketing program and materials. One of the significant concerns that federal regulators have had with overdraft services at some banks is the way in which those who could least afford the service were often the ones who ended up paying the largest fees, both in numbers and overall amounts. The Office of Thrift Supervision recently published Proposed Supplementary Guidance on Overdraft Protection Programs. In particular, Section III-A of the proposed Supplemental Guidance dealing with Marketing and Customer Communications, beginning on the fourth page of the document (page 22684 of the Federal Register), includes a discussion of marketing methods to be avoided. The OTS proposal is worthwhile reading for marketing and compliance managers in any financial institution, whether or not they are regulated by that agency.

First published on BankersOnline.com 7/12/10