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With the changes to Reg. E, the financial reform legislation, the new view of our fee structures by various groups of regulators, and the uncertainty of what may still be on the horizon, every financial institution must take immediate and decisive steps to protect retail accounts and their associated revenue.

The most immediate effects that every financial institution will experience started on Aug. 16. Now, because of recent changes to Reg E, FIs cannot charge fees for overdrafts from everyday debit card or ATM transactions unless the account-holder has affirmatively consented.

Even with the most aggressive and responsive account-holder notification programs, there will be at least a 10% to 15% reduction in revenue. Those FIs that did not execute a strong opt-in program will see a 50% or more reduction in overdraft fee income.

On Aug. 16, your accountholders' debit cards started to be rejected where they would have worked in the past. Accountholders view this as their credit union treating them badly and providing poor service. They do not blame the federal government or the merchant who simply passes along the message that the card has been declined. They will blame their credit union for this embarrassment and any problems that arise from the denial, like not being able to get gasoline when they need it.

What is extremely unfair to the FI is that this previously profitable accountholder will do what most do when they get mad at their bank or credit union: they will look for another institution that will treat them better. Other than physically moving, the most common reason that consumers change institutions is because they get mad at their current FI. The bottom line is that there will be millions of angry account-holders in the second half of this year.

High Traffic Members At Risk
When a member closes his account, the CU loses that low-cost deposit, as well as the interchange and fee income the account provided. Since the accounts most affected by this are heavy transacting accounts, this means that losing one of these active accounts is as painful to your CU as losing three or four average accounts. When all revenue sources are considered, losing a heavy transacting account could cost $800 or more per account on an annual basis.

Since we know that, in the best case scenario, 15% of accounts will be affected because they did not opt-in, half of these accounts leaving (7.5%) could have the same effect on your revenue as a reduction of 20%-plus of your total account base. How would your P&L look if you saw a 20% reduction in the total number of checking accounts that you have in a six-month period?

Now that you have an idea of the significance of the revenue at risk because of this one change to Reg. E, finding a way to address this problem should be at the top of your "to do" list. There is time to mitigate the damage, but failure to act decisively to reduce the pending accountholder attrition will result in the revenue loss described above.

If you are ready to act when a cardholder has a point of sale denial, you stand a good chance of keeping the account and the associated revenue.

Your debit processor can provide you with a daily debit card transaction denial report. This report shows transactions that were rejected for a variety of reasons, including the overdraft limit being set to zero for the accounts that did not opt-in.

Your core should be able to provide you with a list of accounts showing which were opted-out automatically and which were opted-out because of an accountholder decision.

The key to mitigating the damage to revenue and member service is being able to marry these two lists and then message accordingly to your account-holders.

If an account-holder failed to respond to your opt-in communication and has a debit transaction declined, you should contact him to let him know why this denial occurred. By providing immediate communication, several things are achieved.

Understanding Who Is Really To Blame
First and foremost, the account-holder realizes that the denial was caused by the change in a federal regulation, not by you not providing good service.

Second, you have an opportunity to explain the options to have the transaction paid, including lower-cost alternatives to address regulatory scrutiny of multiple recurring overdraft fees.

In any case, you can keep the account-holder from getting mad at you and provide him with a way to prevent this problem in the future.

If the account-holder had chosen to opt-out, the communication would be similar, but would remind him that he made the choice to have the transaction denied.

We believe that well over half the users of overdraft services that opted out did not fully understand what would happen. Proper communication to this group of account-holders can allow them to change their mind. At the very least, it lets them know why their card was declined and hopefully will keep them from getting mad at you.

You will quickly find that you need to automate this process so that it can happen in a timely manner without requiring significant resources on an ongoing basis, and there are vendors who can help.

Mike Bender is the CEO of Velocity Solutions, a provider of revenue enhancement strategies for financial institutions. Bender has more than 15 years of experience assisting financial institutions with a broad suite of profitability and software related engagements and programs. He can be reached at 910-254-9383 ext. 102 or at

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