Sunshine Through the Overdraft Clouds.

• Author: Giltner, Robert C.
• Position: Overdraft Protection - Cover story

Changes to Regulation E may appear to crimp some revenues and add work in the short-term, but don't worry. Banks can benefit by concentrating on good customer communications and the new opportunities for income enhancement.

What is going to be the impact of the new rules concerning consumer fees on certain overdrafts? And what do marketers need to communicate with their customers about these changes?

Specifically on Nov. 12. 2009. the Federal Reserve announced changes to Regulation E prohibiting financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions unless a consumer consents ("opts in") to the overdraft service for those types of transactions.

When the final rule was released, you could almost hear the groan of beleaguered bankers. Many bankers worried that the new regulations were merely the first shoe to fall in an inevitable dismantling of overdraft services and the revenue that it generates. Others lamented the added work, increased costs and overall burden of more regulation.

Some of these concerns are real, but further analysis by executives will illustrate that the changes to Reg. E should be embraced by the banking industry as a new opportunity to improve customer service and drive long-term industry revenues. To be certain, some customer revenues are going to be lost and new customer service processes are going to be required. However, the opportunity for banks to serve customers better and increase short- and long-term revenues outweigh any costs and losses. We say this for three reasons:

* Reg. E provides the impetus for needed improvement in POS/ATM overdraft procedures.

* Revenue losses from customers who do not opt in can be outpaced with revenue gains from improved service for customers who opt in.

* Reg. E supports improved public policy.

The key steps to implementing your Reg. E processes are:

* Focus on helping customers make the best decision for themselves.

* Follow up mass mail and e-mail communication with a segmented approach.

* Provide excellent communication decision tools such as online videos and/or a decision wizard.

Improved POS/ATM overdraft procedures

Overdraft services exist because customers who use them value them. In the 1980s, most checks were returned on accounts where insufficient funds (NSF) existed. But by 2000. nearly all banks had put in place programs resulting in 85 percent of NSF cheeks being paid. Checks are legal instruments that when returned usually result in the customer having to pay returned item fees to merchants or other payees. Returned checks may also result in negative information being reported to a bad-check database, and often result in embarrassment and other inconveniences to the customer. Consumers were pleased with these bank overdraft programs, and few complained about writing a check or...