WILMINGTON, N.C.-Credit unions that have approached the upcoming Reg E deadlines as a marketing opportunity and not just an operations issue stand a much greater chance of protecting their debit card revenue, analysts told Credit Union Journal.
With less than one month left to comply with the new law, major card processors and industry experts believe that the majority of credit unions are prepared for the respective July 1 and Aug. 15 deadlines, but also agree that many are not. They cite widespread differences in CU readiness in terms of just meeting obligations and sending out notices, to detailed marketing campaigns that for some already have 30% of checking account members opting in to overdraft. Approaching Reg E from simply an operations perspective runs the risk of debit card attrition, processors warned, and that lost revenue could lead to cutbacks in reward programs.
Under amendments to the Fed's Reg E, Electronic Funds Transfers Act, by July 1 financial institutions must obtain permission from new customers to provide them with automatic overdraft protection on all non-recurring debit card transactions and ATM withdrawals. By Aug. 15, they must obtain opt-in for existing customers.
Heather Kline, Velocity Solutions CU product specialist, noted some CUs are "at the starting gate" and some are "near the finish line." "Credit unions that started with this in their operations group are behind. The successful CUs have turned it into a marketing initiative and many are getting 95% or more of those who respond to opt in." Kline noted Mid Hudson Valley FCU in Kingston, N.Y., as an example. At press time the CU's straightforward "Say yes to no bounce" campaign had 25% of the CU's total checking account base opted in to overdraft protection (see related
Jeff Russell, VP-strategic planning and development, The Members Group, Des Moines, Iowa, is seeing similar results from CUs that started early with comprehensive marketing programs that combine regular monthly notices via-e-mail, print, and outbound calling. "Those credit unions are seeing great adoption rates, 80% plus, probably more than 90% by the time they wind down. But I also think there will be a number of credit unions having to push hard over the next month."
Those behind the curve certainly face member satisfaction issues post Aug. 15, warned Bill Lehman, VP of portfolio consulting for CSCU in Clearwater, Fla. "Overdraft protection is a service our customers expect. They are going to expect their debit purchases to clear in August."
Card declines could lead to attrition, cautioned Lehman. "Cardholders might say, 'Why don't you do this for me anymore?' They won't understand that it's Reg E and will think it's the credit union's fault. They will move next door and try the next financial."
That will likely lead to "adjustments" in the case of CUs that have not effectively educated members. Changes could lead to potential rewards cutbacks. "Credit unions always have to evaluate the profitability of their debit program," Lehman noted. "When revenue is taken away, credit unions have to find ways to make that program profitable."
If cutbacks occur with debit rewards, the decision would be made after assessing the competitive landscape, offered Jim Gowan, EVP and COO of CU 24 in Tallahassee, Fla. "A lot would depend on how successful the program has been and what everyone else is doing locally."
