What's Ahead For 'Free' Checking?

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NEW YORK-Increasingly, it appears consumers are going to find "free" comes with an asterisk. Perhaps more than one.

The CARD Act, changes to Reg E and pending interchange reform, are likely to have some not-so-subtle effects on the financial services market and the types of products with which CUs compete.

In this issue, Credit Union Journal presents a special report examining how the retail market is being affected by new laws and other developments. Analysts suggest the impact will be felt most by banks, which as a result are most likely to change pricing on retail products. For credit unions, other strategies may need to be considered, with the short-term focus on aggressively reaching out to members and encouraging them to opt-in to overdraft protection programs where available.

Hank Israel, director of payments and checking for Novantas LLC, a New York-based consultancy, predicts not the end of the Era of Free Checking, but the dawning of the "Era of Free With..." Israel said free checking will only be available to those who meet other relationship requirements, such as a number of monthly transactions, a minimum relationship balance, etc.

Dennis Dollar, principal partner of Dollar Associates, Birmingham, Ala., said overdraft privilege programs "are too important to both members and credit unions for them to be abandoned simply because the workload and scrutiny have increased dramatically."

Where Dollar does see potential harm is if the Durbin interchange amendment remains in the bank reform bill currently before Congress. While he believes overdraft revenue may take a short-term hit from Reg E but should rebound within 12 to 18 months, "However, any significant interchange revenue loss will likely be permanent and will force some significant changes in how all financial institutions price checking accounts."

If credit unions want something to worry about, suggested Chris Collver, an analyst with the California and Nevada CU Leagues, there are two laws under evaluation in Congress would place further restrictions on overdraft procedures (see related story).

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