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#2033940 - 08/17/15 02:00 PM Change ODP Static limit to dynamic limit
travelgirl Offline
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Minnesota
Our bank is considering a change from a static limit ODP (i.e. set dollar limits) to a dynamic limit that can change based on account balances, activity, etc.

Looking for feedback on the following:

1. Change in terms notice to existing users - 30 days notice?

2. What would the change in terms and initial notice say about what or rather how the new limit is calculated so that the customer understands? How will customers know their limit at any given time? I'm guessing we would have to say something about how often it can change. The disclosure language is the "sticking" point for me in not moving forward (other than the fact that ODP programs in general make this CO very nervous).

3. Anyone have any "guidance" or regulator opinions on offering dynamic limits vs. static? I have yet to find anything. I'm guessing it's all being left up to the CFPB now?

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#2033957 - 08/17/15 02:37 PM Re: Change ODP Static limit to dynamic limit travelgirl
Elwood P. Dowd Offline
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There is no TISA requirement to disclose a "limit" on an overdraft service so there is no per se requirement to give advance notice of a change. However, it certainly would be prudent to do so if the workings of your new system could impact some consumers negatively.

You're going to have to first explain your new system to us before anyone can offer any suggestions about how it might be worded "so the customer understands."

Without knowing why this idea was cooked up, I would say it's a bad one.
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#2033990 - 08/17/15 03:51 PM Re: Change ODP Static limit to dynamic limit travelgirl
John Burnett Offline
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Who is your prudential regulator, TravelGirl?
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#2034055 - 08/17/15 06:43 PM Re: Change ODP Static limit to dynamic limit travelgirl
travelgirl Offline
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Minnesota
John, The OCC. I am new to the bank (current bank recently acquired my old bank). Unfortunately I am still learning about the software that will determine the dynamic limits. I do know it will be based on things like the age of the account, average balance (still need to confirm if that's ledger or collected) and # and/or $ amount of deposits/month.

I don't yet know the reason "why" behind the change. Only have had one meeting and still doing my investigative work.

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#2034090 - 08/17/15 07:58 PM Re: Change ODP Static limit to dynamic limit travelgirl
Elwood P. Dowd Offline
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"The software," is it being provided by your mainframe processor or a vendor of overdraft services?
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#2034120 - 08/17/15 09:29 PM Re: Change ODP Static limit to dynamic limit travelgirl
travelgirl Offline
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Minnesota
A vendor of overdraft services and I'm slowly putting pieces together. The software was vetted and purchased by people who are no longer with the company. I'm suspecting the "reasons" decisions were made were based on a good sales pitch, a way to get higher Reg E opt-in rates, increase non-interest income revenue (which scares me in itself)....vendor included a nice "packet" of various agency guidelines and opinions that really don't say much about dynamic limits. Porject took a long time to get off the ground because the software didn't play well with our mainframe. Those issues seem to be fixed but now we are discussing whether we even want to use it now or not. Entirely new group weighing in. I think a dynamic limit can have customer benefits, it automates the limits based on set account criteria meaning less discretion, but I'm having a hard time with the whole "no one will know what the limit actually is." How can I state my case for a no-go vote? I know larger banks do this all the time.

Are you aware of any UDAAP fines for ODP limit setting? Or where I can browse for some?

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#2034125 - 08/17/15 09:48 PM Re: Change ODP Static limit to dynamic limit travelgirl
Elwood P. Dowd Offline
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It was pure cynicism that made me wonder if this grand idea was coming from someone who stood to profit from it... Here's your reading assignment for the evening: The OCC's publication, Deposit Related Credit, March 2015. See the section on Overdraft Protection.

We'll talk. wink
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#2034128 - 08/17/15 09:59 PM Re: Change ODP Static limit to dynamic limit Elwood P. Dowd
travelgirl Offline
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Thanks Ken!!! Pulled a copy last Friday and started reading it today. My colleague indicated much of this info isn't "new" since the OCC periodically updates this. I will still read cover to cover but am wondering how much of it is new info?

As of right now, absent any regulator guidance and any better reason than more fee income, I'm of the opinion to say no-go...feels to much like a road to UDAAP issues. Not to mention I'm guessing the CFPB will be blessing us with some ODP regs in the next 12-24 months.

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#2034145 - 08/18/15 09:49 AM Re: Change ODP Static limit to dynamic limit travelgirl
Elwood P. Dowd Offline
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The foundation for the OCC piece isn’t “new,” but it’s a more compact and sophisticated analysis than they’ve offered before and the examination procedures are exhaustive.

In your shoes, I would call the vendor and say: "Given the new team, we are having second thoughts about implementing the software. Please provide another demo." They’ll do it. The last anecdote they want out there is that a bank bought their software then decided not to use it. Regardless of all other facts, there’s simply no way you should flip a switch on this if your group doesn’t really understand how it works – banks cannot turn over their decision making processes to vendors.

If the vendor sold your predecessors on the idea that the software would increase fee income that would be completely unrealistic unless the software could automatically raise the “maximum” overdraft amount for many consumers. Any vendor selling that idea in the current environment should be banished to the thinking chair. It’s purely predatory.

On the other hand, the software could be a great compliance tool. If your bank can retain control over the maximum overdraft amount (regardless of the analytics), the software could be a huge improvement in justifying your bank’s claim that it actually underwrites its overdraft decisions at the account level. If the limit for consumer customers is $400, but the software can decide that $250 is all Rufus gets today then your bank clearly read the portion of the guidance dealing with credit risk. (Even if you disclose a potential $400 limit to Rufus, you are not obligated to pay to that limit; if you were, this would be a line of credit subject to Reg Z, state usury laws, etc.) If the software can also track and report on “frequent fliers,” so much the better.

Know that you will need to do some documented testing to assure that the software works the way you were told that it works.

Honestly, I would encourage you to hear what the vendor has to say, but until they fully understand the software, your team's only responsible vote is “No.”
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#2034187 - 08/18/15 01:32 PM Re: Change ODP Static limit to dynamic limit travelgirl
John Burnett Offline
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I admit to having a rather jaded view of most vendor-supplied "courtesy overdraft solutions." Most that I have looked at are "sold" to banks on the premise that they will increase non-interest income. Some pay lip service to the concept of better management of overdrafts.

Certainly, more efficient overdraft management can generate bottom-line savings. But increased fee income only comes from one place -- customers who pay more overdraft fees than they currently do. That happens through an increase in the bank's fee schedule (or increases in fee cap amounts) or increased use of overdrafts. If the majority of the increase in non-interest income comes from increased use of overdrafts, my concern level goes up.
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#2034274 - 08/18/15 04:46 PM Re: Change ODP Static limit to dynamic limit John Burnett
travelgirl Offline
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Joined: Mar 2004
Posts: 223
Minnesota
THANK YOU both for so many valuable recommendations. I think the reason I'm on the fence is I just don't know if the software can do the things that could help us follow the guidance. But armed with your suggestions, I've made a plan.

I think too that marketing and operations are a little worried, at rightly so, about the customer impact and communication for a change to this product at this time. We just finished an acquistion earlier this year and made fee changes within the last 12 months. Plus there is some concern over not disclosing an actual amount / limit.

Again I REALLY appreciate the suggestions! As always, you guys came through!

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#2034492 - 08/19/15 02:14 PM Re: Change ODP Static limit to dynamic limit travelgirl
Elwood P. Dowd Offline
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Review the disclosure where the dollar amount was mentioned with the rest of your team. If it was written correctly, it did not make a promise to pay an item of any amount nor did it put a "limit" on the possible dollar amount of an overdraft.
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