What are you doing about overdraft plans? (December 2009)

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What are you doing about overdraft plans? (December 2009)

What are you doing about overdraft plans?

The Overdraft Challenge
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 one-time debit and ATM transactions.

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

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.

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 list 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?) I have even encouraged people who have problems with their accounts to close them, open a savings account, use money orders—whatever it takes to save themselves some money.

Remedy 3
Jeffrey Smith, president and CEO, Ohio Valley Bank Co., $810.4 million, Gallipolis, Ohio

There’s one curious thing in all this. Nobody ever got on the bankers’ case because they returned a check and charged an NSF fee. They do get on us because we didn’t return a check, in fact, honored the check, and charged a fee. In my bank’s case, we’ve offered to take people off the service if they prefer that.

Remedy 4
Dane Cleven, chairman, president, and CEO, Community Savings Bank, $409.2 million, Chicago, Ill.

We have never offered an overdraft service. It has always been sold as a way to make a lot of fee income, and as a mutual company, the concept doesn’t fit well with our approach to customers and customer relationships.

Remedy 5
William Grant, chairman and CEO, First United Bank & Trust, $1.7 billion, Oakland, Md.

Banks have admitted these fees are a significant source of noninterest income, but that’s only part of the picture. People need to recognize that that fee income supports many other activities.

Eight out of ten bank customers never bounce a check, and the rest do it once in a blue moon. When they do, they pay a reasonable fee. Most people prefer paying fees to seeing an important payment, such as an insurance premium, go unpaid when due.

Those fees do more than go to a bank’s bottom line. How do people think banks provide free lifeline checking accounts, for instance? And what about the costs of providing the Bank Secrecy Act/Anti-Money-Laundering compliance that assists in our national defense and crime fighting?

Remedy 6
Francis Campbell, president and CEO, Pilgrim Bank, $157.9 million, Cohasset, Mass.

We implemented the program initially with the idea that we would be proactive with potential regulatory and consumer concerns in addition to managing our risks. We created a policy that addressed the order of processing, the number of overdrafts and fee cap per day, as well as customer refunds. In addition, our fee is slightly below median.

Overall, the program has been positive for customers who have their checks paid rather than returned.

Remedy 7
Frank L. Carson III, president and CEO, Carson Bank, $81.3 million, Mulvane, Kan.

We never instituted the formal overdraft programs that some other banks did. Ours does not have the additional costs that many do. We do work with our customers if there are extenuating circumstances.

The electronic version of this article available at: http://www.nxtbook.com/nxtbooks/sb/ababj1209/index.php?startid=14