Study Finds Two Camps Of Reg E Responses

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SAN FRANCISCO-Financial institutions are responding in two ways to the advent of Regulation E and the resulting loss of revenue in overdraft fees and other revenue: through other "gotcha" fees and by positioning themselves as having the consumer's "back" using mobile services.

That's according to the latest from Javelin Strategy & Research. In its study, "Reg E and Overdrafts: How Financial Institutions Can Use Mobile to Increase Profits Post Reg E," it said it has found some institutions are responding by trying to preserve fees: "fees consumers consider 'gotcha' fees due to their getting no warning and having no way to respond."

But Javelin suggested the "better strategy" is to adapt to the new regulations with "the aim of becoming their customers' financial ally and a 'got your back' bank. One way FIs can do this is by offering customers timely, actionable and relevant mobile alerts."

Javelin said that almost twice as many overdraft violators-consumers who have paid at least one overdraft charge in the past year-use mobile banking as do consumers overall and they want to be alerted before an overdraft occurs. "Many consumers see financial regulations as a victory and feel they now have greater say over what fees to pay," said Mary Monahan, Research Director. "FIs can transform their image from adversary to partner by being more transparent about the fees they charge and by giving their customers the control they want-such as being able to respond to a mobile alert before incurring an overdraft fee."

Javelin said its research shows how "banks and CUs can reposition themselves and revamp their business models to recoup lost fees due to Reg E-and what certain FIs are doing already."

The study also examines who overdraft violators are and how to target them, as well as how mobile banking can be used as a solution that works for consumers and institutions alike. "The last thing a bank should do is alienate a new-and especially an inexperienced-customer by automatically imposing a hefty fee when they have overdrafted on a one-time debit card transaction or at their ATM," said Javelin's Mark Schwanhausser. "Instead, the bank can send them a mobile alert, which empowers the consumer to choose what action to take to avoid overdrafting such as transferring funds..."

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