The Y2K of 2010 Gets Knocked On Its Ear

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LAKE BLUFF, Ill.-The financial industry's Y2K scare of 2010-the projected, dramatic loss of revenue from the new overdraft rules-never came to be. In fact, financial institutions' revenue from overdraft protection is tracking to rise in the fourth quarter.

"I think we will see it increase by $2 billion," stated Mike Moebs, economist and CEO of Moebs $ervices, who said third quarter numbers indicate a slight drop in overdraft revenue. Earlier this year Moebs predicted overdraft revenue would dip in the third quarter and come back strong in the final months (Credit Union Journal, April 12).

What's led to the excellent results are credit unions doing a good job of communicating the new Reg E rules to members and lowering overdraft pricing, according to Moebs. Community banks and small regional banks followed suit, leading 99% of the most frequent overdraft users-those with more than 10 overdrafts in the past year-to opt-in for overdraft protection. And of the least-frequent users, those who never had an overdraft, 50% opted in, Moebs' research showed. Approximately 75% of all credit union and bank checking customers signed up for overdraft protection. Industry projections early in the year called for a total opt-in rate between 45% to 65%.

Moebs $ervices surveyed 2,265 financial institutions, including 1,200 credit unions, and also gleaned data from one million checking accounts. Those numbers showed that not only did the vast majority of checking account customers opt in for overdraft protection, but growing numbers of credit unions are now offering the program.

"When consumers understand why a fee is being charged, and they know they have options to avoid it, they feel more comfortable. That is why transparency-clear, uncomplicated, and speedy communication-is so important," insisted Moebs, noting those having success with overdraft protection hold an important perspective on the service. "Credit unions, community banks, and the small regional banks view overdraft as a safety net for consumers, not a means to make money, and price it reasonably, which is not much more than $20."

That thinking is reflected in the median price of overdraft protection fees falling 6%, from $28 in July 2010 to $27.50 by late November 2010, according to Moebs. "This decline is the first time in more than 25 years that the price of an overdraft dropped."

Nationally, the data shows community banks and credit unions lowered the price of overdraft fees, while large Wall Street banks remained high at a median price of $35, according to Moebs. "Large banks with over $50 billion in assets experienced a 2% loss of market share. These banks did not receive the same high percentage of consumers opting in for overdraft protection, and as a result the market share in checking is being lost by the big guys and increased by main street institutions."

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