Reg E's Beneficiary May Be Debit

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RANCHO CUCAMONGA, Calif.-All of the communication around Reg E may be drawing more attention to debit and boosting debit volume.

Caroline Lane, SVP-business development at Co-Op Financial Services, told Credit Union Journal that debit volume is up by "double digits" this year. "I don't know that I can imply cause and effect between all the extra communication that surrounded the implementation of the Reg E rules. But we have seen stronger activity, both in volume and transactions, within our customer base. It's possible Reg E has had a positive effect."

A number of sources reported strong debit growth in September, but did not feel comfortable attributing the business to Reg E until a few more months of data are under the belts of credit unions. Additionally, Y2K-like concerns about overdraft revenue disappearing continue to be unfounded (Credit Union Journal, Sept. 20) as the industry reports steady overdraft revenue through September, some citing gains.

Tom Gandre, group executive at PSCU Financial Services in St. Petersburg, Fla., said while PSCU overall debit growth (PIN and signature) is 16% this year, PSCU is also seeing slightly higher debit card decline rates, around 10 to 20 basis points during September. But Gandre believes that will not negatively affect debit activity and that decline rates will level out soon as more credit unions, many of which began their Reg E programs near the Aug. 15 deadline, reach more members. "I expect the number of declines to go back down in October," Gandre said.

In a Sept. 20 report, Credit Union Journal shared that a sharp drop-off in opt-in and overdraft revenue did not occur in the last half of August and early September. With a month-and-a-half of data now collected, credit unions report that overdraft volume remains steady, and in some cases is up.

Henry Wirz, CEO of the $1.8-billion SAFE CU in Sacramento, Calif., said that at his credit union, through September overdraft revenue is up 5%. "It's ironic. We thought Reg E would be very damaging to our overdraft protection program."

Prior to the new overdraft rules, SAFE considered overdraft protection a viable and helpful member service for many, but did not promote it due concerns over abuse by a small percentage of users. But when the credit union began communicating early this year about the new rules-using outbound calling, in-person contact, letters, and e-mails-the CU's 14,000 heavy overdraft users ands 45,000 casual users got the message, Wirz said.

"A government program whose original intent is to reduce consumer abuse of overdraft protection has had the opposite effect . . . As far as the rules impacting debit usage, it's hard to say because debit is growing persistently."

According to Lane, what is also keeping debit volume strong are credit unions working hard to drive debit penetration, activation, and usage in preparation for the new interchange rules. "One credit union realized their Gen Y members were not using debit at grocery stores. And those are high-ticket purchases. They ran a targeted campaign to incentivize younger members to use their debit cards at the supermarket."

Some debit incentives, however, could be going away, cautioned Tony Emrick, SVP- business development, Fifth Third Processing Solutions in Cincinnati. "If interchange pressure continues to mount on the industry, some will not be able to offer their own rewards programs. I believe a lot of merchant-funded rewards programs will take over, as well as PIN debit on the Internet."

Aris Jerahian, VP-client relations for The Members Group (TMG), in Des Moines, Iowa, contended that debit is "resilient." And while debit growth continues to muscle its way through the recession-at over 10% annual transaction volume at TMG member CUs-time will tell the debit story. "From month to month, debit fluctuates a great deal. We do not have October numbers, so it's really tough to make a call on the impact on debit Reg E has had. We need to look at two to three months to spot a trend."

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