Opting In to Overdraft for Fee Income, Customers

American Banker
April 5, 2010
Davidson, Kate
P. 1

Many smaller banks say they plan to continue offering overdraft protection programs because demand is strong and the fee income is essential to staying in business. However, consultants say community banks that reduce fees and embrace the federal rule change could gain more accounts and higher revenue. The Fed's Regulation E, which enforces the Electronic Fund Transfer Act, requires banks to obtain permission from new customers for automatic overdraft protection by July 1 and obtain opt-in approval from existing customers by Aug. 15. According to a Moebs survey, 11.4 percent of banks have begun preparing for the change. A little over half plan to raise overdraft fee amounts, 18.4 percent said they would cut fees, 11 percent said they would offer overdraft protection for the first time, and 13.5 percent planned to end the service altogether. Some banks argue that overdraft protection saves consumers from being embarrassed by a denied card and provides essential revenue for the bank, but consumer advocates say the fees are often unreasonable and result in exorbitant fees for a handful of small transactions. The Consumer Federation of America is urging banks to, rather than push customers to opt-in, follow in the footsteps of Bank of America, which got rid of its overdraft protection programs.