BBVA Compass is on the Right Track with Overdraft Fees

To help customers avoid fees and more easily manage their finances, BBVA Compass is joining a growing number of large US banks announcing policy changes. Specifically:

• Eliminate all overdraft fees when a customer's account is overdrawn by $5 or less
• Provide new customers the choice to opt-in to overdraft protection at account opening
• Actively promote its Savings Overdraft Protection service which became available in February 2009.

Such transparency and fee moderation will help US banks regain public trust. If more broadly adopted, they may also stave off regulation working its way through congress. But neither regulation nor policy changes get at the root of the problem. Lost in the debate over overdraft fees is the notion that they are 100% avoidable – by not overdrafting in the first place. It’s unclear what fraction of account overdrafts are unintentional. Some activity may in effect be intentional short term lending. Some well-placed tools to help consumers better manage their finances may actually address the root cause. Since balancing one’s check book ledger against monthly statements appears to be a lost art, what can banks do to help account holders stay ahead of the game? BBVA Compass is on the right track. It recently announced that it will be piloting a program that will provide new electing customers a text message alert when an overdraft occurs on their account. The new program is expected to begin shortly in four test markets. BBVA Compass expects to roll-out the service to its remaining markets across its seven-state footprint by the end of the first quarter 2010. Mobile banking customers won’t be able to say they weren’t well informed. Customers can create alerts to receive text messages when account balances dip below preset balances. They may also text their bank for real-time account balances prior to making a debit card purchase. And, should an overdraft occur, they’ll know about it immediately and be able to take action to prevent its reoccurrence. Will moves like this persuade congress to retreat from the legislation proposed by Senator Dodd (D-Connecticut) earlier this month? Not likely. Further demonizing banks is too attractive for a congress battling historically low approval ratings. US retail banks will have to learn to do more with less – by fiat.