Come August 15 those customers who have not opted in to their bank’s overdraft protection program may start to see their debit cards declined when making transactions with insufficient funds. Customers won’t be able to withdraw cash from ATMs either, if their accounts don’t have enough money. Already, as of July 1st, new bank customers have been asked to either opt-in or opt-out of overdraft protection as part of new sweeping regulation from the Federal Reserve, which seeks to protect consumers from paying overdraft fees as high as $39 for surpassing available funds on every day transactions such as paying for a cup of coffee. The new rules that apply exclusively to ATM withdrawals and one-time-only debit card purchases, have made life more complicated for banks, according to the American Banking Association. “It’s great news for consumers, this is a very pro-consumer regulation that puts consumers in the driver seat to choose whether or not they want this kind of protection,” said Carol Kaplan, spokesperson for ABA. “But certainly it will impact bank revenues.” Compliance costs Not only do banks stand to lose revenue from the fees, but the added operational costs for financial institutions to comply with the regulations is placing an additional burden on them, she said. According to Kaplan, banks across the country have had to revamp their entire operating systems in order to identify and keep track of who is opting in and who is not. “Companies have had to put a lot of money to update software to handle all these complex new changes. It’s going to be very costly for banks to keep up with new regulations.” To some bankers, the regulations place significant restrictions on a service that is largely appreciated by customers. “Many of our clients have come to tell us that they really appreciate that [overdraft protection] even at the charge. Many clients basically believe it’s in the best interest of them personally” said Dave Malone, President and CEO of Community Bank. “I think the bulk of the programs that banks have rolled out have been very beneficial to consumers, my concern is I hate to see these things be regulated in a way that when you really think about it, is not in the best interest of people who find these things attractive.” Small percentage According to ABA annual consumer research surveys, it’s only a small proportion of bank customers that use overdraft protection, said Kaplan. In last year’s survey only 17 percent of bank customers polled said they had had an overdraft in the previous 12 months, and out of those, 95 percent said they were glad their payment was covered even though they had to pay a fee, she said. Still, consumer protection advocates claim the new rules don’t go far enough to prevent banks from charging excessive fees. The rules don’t apply to recurring payments such as monthly deductions for a newspaper subscription or utility bill, and banks also remain free to cover other transactions, such as payments with checks, and charge a fee. The added regulation has led some banks to respond by doing away with free checking unless a customer maintains a large balance or meets other requirements, to make up for the revenue loss.
