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The Slippery Slope of Fees

Kevin Malicki keeps financial institutions up-to-date on Governance, Risk, and Compliance (GRC) as Director of Product Management at Harland Clarke.

Transcript

All industries try to slip a fee by you.

Your cell phone provider, car dealer, airline, hotel, rental car … there is no shortage of industries looking to squeeze nickels and dimes from your pocket.

Financial institutions are no different, except for one big exception: Regulatory oversight by the CFPB and the increasing burdens of being compliant.

In its latest study and new prototypes around overdraft fees, the CFPB made clear it isn’t letting up on its focus. Though still in a “pre-rule stage,” the agency is building on its “Know Before You Owe” disclosure rules that previously included documents for mortgages and prepaid accounts.

So what does this new CFPB disclosure mean for your financial institution?

Well, there are a handful of repercussions.

For one thing, you will likely have to change processes and technologies. Your policies and procedures will likely have to change, as well.

Additional costs will likely be incurred, and there’s a potential loss of revenue.

The good news is there are steps your financial institution can take to mitigate the damage.

Here are five actions to consider:

  1. First and foremost, make sure you are compliant
  2. Provide alternatives to imposing a fee
  3. Do a competitive analysis to see how much your competitors are charging for NSF fees; consumers are more savvy and educated than ever and are asking questions about fees and, in some cases, even shopping based on them — don’t get caught on an island by charging an exorbitant fee
  4. Consider adopting online training tools to educate your account holders on how to avoid overdrafts
  5. Continue to look at other areas for generating fee income; don’t get tunnel vision and become over reliant on any one particular fee to generate revenue — I’ve heard about a new fad of charging a fee for ACH transfers.

Fees are now — and will continue to be — a major revenue driver for financial institutions. How well you manage them and disclose them will determine whether you remain compliant with the CFPB and avoid hefty fines and other punitive actions.

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Harland Clarke Corp. is a leading provider of best-in-class integrated payment solutions and marketing services, serving multiple industries including financial services, retail, healthcare, insurance, and telecommunications.

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