The Regs They Are a Changin'
26 January 2010
Changes to Reg E will have a dramatic impact on the economic of free checking and checking in general. Let's first look at the main points of the new rules: 1. Consumers must explicitly opt in to overdraft charges for ATM and one time debit card transactions for both new and existing accounts. 2. These accounts may still have overdraft on checks, ACH transactions, etc. INDEPENDENT upon the decision to opt in for the ATM and one time debit card overdrafts. 3. There are no exceptions for non-real time payment lag issues. If the bank authorized the payment and at settlement the payment is now an overdraft, banks can't levy fees. 4. Debit holds will remain as is. If a gas station places a debit hold on an account for $75, and the customer gets $40 worth of gas, the bank can make the debit hold unavailable. Regulators feel that these holds are more appropriately dealt with in payment systems rather than banking systems. What does this mean to banks? There will be less overdraft fee revenue; much less. According to the FDIC's Study of Bank Overdraft Programs, POS/debit overdraft transactions accounted for the largest share of all insufficient funds transactions (41.0%). Banks will need to adjust their business models to make up for this revenue. Is free checking now likely to disappear? Will product bundles now become the standard offering with a credit card, line of credit or mortgage cross subsidizing the checking? I'll be pondering these questions in an upcoming report. This also presents a compelling reason to move to real time systems. If the bank is not able to calculate available funds in real time, it now becomes the bank's problem rather than its customers'.