The Overdraft Challenge

ABA Banking Journal, December 2009 | Go to article overview

The Overdraft Challenge


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So much acrimony, and much of it over a cup of coffee. An exaggeration, perhaps. But a senior Lobbyist recently spoke of the seemingly daily barrage of articles that he sees about consumers who have had to pay multiple overdraft fees of $30 or so because they overdrew their accounts by buying mocha latte with a debit card. (No one ever mentions the money spent on overpriced coffee.)

Surveys and banker experience demonstrate that consumers want and appreciate overdraft service. But, as the Lobbyist continued, "What can we do as an industry to get rid of the horror stories?" ABA recently formed a special overdraft task force to address the entire issue.

The controversy over fee-based overdraft service has raged for more than five years. The matter has come to a head now that Senate Banking Committee Chairman Chris Dodd (D.-Conn.) has introduced his S. 1799, the Fairness and Accountability in Receiving (FAIR) Overdraft Coverage Act of 2009. It joins New York Democrat Rep. Carolyn Maloney's H.R. 3904, the Overdraft Protection Act of 2009.

On Nov. 12, the Federal Reserve Board issued in final form--effective July 1, 2010--its final rule, with commentary, implementing new changes to Regulation E in connection with overdraft service offered in connection with debit card overdrafts. An important overall change, to both existing and new accounts: Consumers will have to opt-in to overdraft service tied to onetime debit and ATM transactions.

We asked prescribers about overdraft. Add your own ideas on our blog at www.abobj, com/blog/277.html.

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Remedy 1

Rheo Brouillard, president and CEO, Savings Institute Bank and Trust Co., $864.3 million-assets, Willimantic, Conn.

We recently changed our program to pay, but not charge for, a single overdraft under $20. We also finalized, and had the board approve, a formal policy documenting the practices followed in our overdraft protection program.

The pending Legislation is a product killer, as far as I'm concerned. If something like it passes, we'll be back to returning checks.

In the four years we've offered this service, I've had no customer complaints.

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Remedy 2

Paula Caldwell, vice-president, First State Bank of Murdock, Minn., $8.8 million

We have made no adjustments to our program, as we actually don't offer overdraft protection. We are a smaller bank with only about 400 checking accounts. Our overdraft fee income is way down from about two years ago.

It has always seemed to me that an overdraft fee is there to dissuade you from overdrawing--when did that change?

Our overdraft fist routinely has the same group of customers who are overdrawn. (One is a very successful farmer and apparently is able to write these fees off; why else would he continually overdraw? …

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The Overdraft Challenge
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