Check Law Could Have Drawbacks

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Recently passed legislation facilitating electronic check truncation could have some unintended consequences on the profitability and even viability of checking-share draft accounts, according to one expert.

Mark Webster, of electronic financial services consultant Capco, told the Wespay Payments Symposium here that financial institutions applauding the Check 21 Act and inevitable move to electronic payments from paper checks are overlooking what makes offering checking profitable: overdraft fees.

As much as 25% of net revenue on retail checking accounts comes from overdraft fees and consumer checking generates one third of banks' retail deposit profits, according to Webster. "What's going to happen when you move to an electronic format?" he asked.

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