Overdraft Rule Forces Consumers to Choose

by Patricia McGinnis 0

By Patricia McGinnis, Director, Banking AdvisoryService

Sunday, August 15, is the deadline forretail bank customers to “opt in” with their banks to signify theirwillingness to pay overdraft charges in exchange for having theassurance that their transactions will be honored, rather thandenied, in case of their having insufficient funds. The newrequirement pursuant to Regulation E defaults the non-responsivecustomer to the “opt out” position, meaning that transactions canbe rejected, including not only checks returned, but also attempteddebit purchases and ATM withdrawals.

An article inThe Denver Post reports the revenue atstake for the banks:

“Overdrafts are big money for banks, which last yearraked in more than $37 billion in fees, about half of that fromdebit-card and ATM overdrafts.

Banks nationwide have been marketing heavily to encouragecustomers to opt in, attempting to protect that lucrative revenuestream, and using the argument that “customers whoopt out could risk embarrassment.”

According to The Denver Post, banks in its regionreport preliminary indications that roughly four out of fivecustomers areopting in, willing to pay thefees.

What does that mean? Do overdrafts reflect customers’financial desperation, or just their lack of timely information? Tosome observers, the high opt-in rate suggests that a highproportion of customers anticipate the need to spend more moneythan they actually have, without access to other sources ofliquidity:

“It is disturbing that this many people live so closeto the financial edge,” said Gail Cunningham, whose NationalFoundation for Credit Counseling found that 26 percent ofrespondents to a poll wanted the coverage.”

From a different perspective, however, one could proposethe opposite interpretation: a high percentage of retail bankcustomers are opting in to the expensive protection simply becausethey think the likelihood of incurring the fee is verylow.

Whatever the motivation, we anticipate an upsurge in theuse of automated banking “alerts” on mobile devices to address the”timely information” gap, and a decline in overdraft fee income tobanks, reflecting the new attention customers have been urged todirect to their bank balances.

View full article:http://www.denverpost.com/business/ci_15735783?source=rss