Overdraft Rules Making Consumers Choose

by Patricia McGinnis 0

By Patricia McGinnis, Director, Banking AdvisoryService

Sunday, August 15, is the deadline for retail bankcustomers to “opt in” with their banks to signify their willingnessto pay overdraft charges in exchange for having the assurance thattheir transactions will be honored, rather than denied, in case oftheir having insufficient funds. The new requirement, pursuant toRegulation E, defaults the non-responsive customer to the “opt out”position, meaning that transactions can be rejected, including notonly checks returned, but also attempted debit purchases and ATMwithdrawals.

The Denver Postreport notes the revenue atstake for the banks:“Overdrafts are big money forbanks, which last year raked in more than $37 billion in fees,about half of that from debit-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 who optout could risk embarrassment.Accordingto The Denver Post, banks in its region report preliminaryindications that roughly four out of five customers are opting in,willing to pay the fees.

What does that mean? Do overdrafts reflect customer’sfinancial 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 close tothe 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 referenced article:http://www.denverpost.com/business/ci_15735783?source=rss

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