Don't expect community banks to follow Bank of America's lead and drop their overdraft protection programs in advance of upcoming regulatory changes.

Many smaller banks say they plan to keep offering such services because demand is strong and overdraft fee income is essential. Consultants say that these banks, unlike Bank of America, do not necessarily need to curry favor with the public by getting rid of the service.

Marcia Johnson, the corporate operations officer at Glacier Bancorp, a $4.1 billion-asset company in Kalispell, Mont., said it considered dropping overdraft protection on its 221,000 checking accounts. But overdraft fees generate considerable income, and the bank decided offering protection was better for customers than going without.

"We envisioned some of the situations — being in the grocery store line and having all our things on the belt and being declined," she said. "Our thought was that we wanted to go through the process to give them the opportunity to opt in."

At the $11.6 billion-asset TCF Financial Corp. in Wayzata, Minn., which has 1.7 million checking account customers, overdraft fees account for about 40% of net income, said Jason Korstange, director of corporate communications. The company does not plan any change in its program, other than notification and an opt-in form.

Consultants predict that community banks that embrace the rule change and reduce their fees may stand to gain the most in terms of revenue and accounts.

"Those banks that are lowering that price, they're going to win Bank of America's checking accounts," said G. Michael Moebs, the founder and principal of Moebs Services, a Lake Bluff, Ill., company that consults for 2,000 credit unions and banks. "I believe very strongly that community banks are going to pick that revenue up."

Bank of America earned praise from consumer groups when it announced in February that it would stop offering overdraft protection for certain transactions in anticipation of a new Federal Reserve Board rule that will require customers be offered the chance to opt in by Aug. 15.

Under changes in the Fed's Regulation E — which enforces the Electronic Funds Transfer Act — by July 1 banks must obtain permission from new customers for automatic overdraft protection on nonrecurring debit card transactions and automated teller machine withdrawals.

By Aug. 15, banks must obtain opt-in approval from existing customers.

Though analysts have said that the rule change could lead to a decline in fee income, Moebs predicted that customers who generate the majority of overdraft fees — the "frequent fliers" — will opt in.

"These are people who have gotten used to this," he said.

A Moebs survey found that, of the 11.4% of banks that have begun preparing for the rule change, a little more than half plan to raise overdraft fee amounts, 18.4% said they would cut fees and 11% would offer overdraft protection for the first time. About 13.5% planned to drop the service.

Banks say overdraft protection saves customers the embarrassment of being rejected when they do not have enough money in their accounts.

"We wish our customers didn't have to pay that fee, but it's a service that customers need and demand," John Buhrmaster, the president of the $336.4 million-asset 1st National Bank of Scotia in New York, said in an interview.

Buhrmaster said his bank does not have a formal overdraft protection program — branch managers have discretion to approve charges, and customers are notified with a phone call or letter.

Rather than creating a formal program, he said, the bank will waive the fees and continue evaluating overdrafts case-by-case.

But consumer advocates counter that overdraft fees are often unreasonable and a handful of small transactions can lead to hundreds of dollars in such fees.

The Consumer Federation of America, in a press release last month, urged banks to follow Bank of America's lead "instead of launching a hard-sell campaign to persuade its customers to opt-in to the most expensive form of overdraft coverage."

Yet at least one prominent banker has decided to waive overdraft fees and figures the potential income won't outweigh the hassle of complying with the new rules.

Arthur Johnson, the chairman of the $435 million-asset United Bank of Michigan in Grand Rapids and chairman of the American Bankers Association, said his bank looked at the number and types of overdraft transactions, and compared it with the cost of notifying its customers and updating its computer systems to implement overdraft protection only on certain individual accounts.

"It's a little complicated, and we just kind of made the call that we would rather spend our time delivering quality services to our customers than fiddling around in the backroom meeting any new compliance requirements," he said. "We have enough of those already."

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