The news hit the wire late last week and now it is official. For those of you who don’t live in the US, a little background before we start. There has been great discussion and debate at the Federal Reserve Bank about changing some of the service fee allowances that financial institutions are allowed to levy their customers. Like other countries (Australia for one, regarding ATM interchange fees) the United States banking regulators have seen the need to start regulating how customers are charged for some of their banking services. In the name of Consumer Protection.
Starting July 1st 2010, financial institutions will have to allow account holders the choice to “opt-in” to open an account that carries overdraft charges. Presumably the market will see to it that there are alternatives to not opting-in. Currently the option for you to have an account that doesn’t charge overdraft fees is, in some cases at least, not so easily discerned. You would need to read the fine print – all of it. Then you would need to “opt-out” and find a suitable alternative yourself. It would appear that the outcome of this regulatory venture will actually have some positive and substantial benefit for the individual.
The Financial Institutions themselves, on the other hand now face a looming revenue shortfall predicted to be in the neighbourhood of 15%. Not good timing from the perspective of current recovery efforts. I am sure there are more than a few red-faced executives in the boardrooms of many of the nations financial institutions, perhaps even a very few with feelings of betrayal after supporting the rescue efforts demanded by their government.
Perhaps now is the time when we get to see the first effects of new regulatory influence in our banking affairs. As consumers we will definitely see a change in the traditional financial management instruments we all take for granted. I am sure that the way in which credit card accounts as well as checking and savings accounts are packaged and promoted will be very different. I am also sure that our lenders won’t take a 15% reduction in revenue lightly and we will see even more varied and creative ways to offset by leveraging the same pot-o-gold – our wallets.
In closing and as usual with a news item of this import to our industry, I will leave you with the official word on the matter… in this case the news release from the Federal Reserve:
Release Date: November 12, 2009
For immediate release
The Federal Reserve Board on Thursday announced final rules that prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.
Before opting in, the consumer must be provided a notice that explains the financial institution’s overdraft services, including the fees associated with the service, and the consumer’s choices. The final rules, along with a model opt-in notice, are issued under Regulation E, which implements the Electronic Fund Transfer Act.
“The final overdraft rules represent an important step forward in consumer protection,” said Federal Reserve Chairman Ben S. Bernanke. “Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service.”
The Board’s consumer testing shows that most consumers prefer not to be enrolled in overdraft services for ATM and one-time debit card transactions unless they affirmatively consent, or opt in. At the same time, testing shows that most consumers want overdraft services to cover important bills, such as checks they use to pay rent, utilities, and telephone bills.
To ensure that consumers have a meaningful choice, the final rules prohibit financial institutions from discriminating against consumers who do not opt in. The final rules require institutions to provide consumers who do not opt in with the same account terms, conditions, and features (including pricing) that they provide to consumers who do opt in. For consumers who do not opt in, the institution would be prohibited from charging overdraft fees for any overdrafts it pays on ATM and one-time debit card transactions.
“Overdraft fees can be costly,” said Governor Elizabeth A. Duke, the chair of the Board’s Committee on Consumer and Community Affairs. “Our rule will help consumers better understand the terms and conditions of overdraft services and will give them an opportunity to avoid fees when these services do not meet their needs.”
The Federal Register notice is attached. The final rules are effective July 1, 2010
… and as the significance of this regulatory missive resonates with the public and we awake to the realization that there really will be no savings because “they” will find another way to get our money into “their” pockets, I leave you with the “simple facts” as reported by Associated Press…