With new restrictions taking effect and billions in fees at stake, banks are not giving up on overdraft services without a fight.
Banks are deluging consumers with warnings that they will soon lose access to these services — unless they act now.
The banks are calling people at home, sending e-mails and inserting statement stuffers to make the case for overdraft enrollment. Some banks have created new overdraft products or rebranded existing ones to make them more appealing.
"It reminds me a bit of the heyday of marketing credit cards to people despite the fact that they might not really be able to afford it," said Jean Ann Fox, the director of financial services for the Consumer Federation of America. "I am starting to hear from people who are asked over and over and over by their banks to opt in."
Overdraft fees have long been an important source of revenue, but starting Aug. 15 they can only be imposed on existing customers who have explicitly opted-in for coverage, under a rule the Federal Reserve published last year. (At July 1, banks had to be compliant with the rules for all new customers.)
"In regards to fees, there's no question about it that the world is changing and banks have to respond," said Theresa McLaughlin, group executive vice president and chief marketing officer at Citizens Bank, a unit of Royal Bank of Scotland Group PLC.
Some banks are aiming wide, trying to contact people through as many channels as possible. Others, including JPMorgan Chase & Co., have been targeting their messages more carefully.
"Customers who use ATMs a lot, there will be a pop-up on the ATM screen," said Tom Kelly, a JPMorgan Chase spokesman. "We try to think about how customers interact with us and therefore how we might be able to reach them." The company also has sent out messages to customers by mail, e-mail and on its website.
TD Bank, the U.S. unit of Toronto-Dominion Bank, is also trying to fine-tune its communication efforts. "Different channels are being used for different customers," said Rebecca Acevedo, a TD Bank spokeswoman. "This is our way of educating people that the change is happening."
TD Bank, like its peers, would not disclose how many consumers have opted in to the service, though Acevedo said her company is "pleased with how it's going."
Citizens Bank has used mail, e-mail and statement inserts to contact all of its customers, but is calling only customers who have used its overdraft services in the past, spokesman Mike Jones wrote in an e-mail.
Both TD Bank and Citizens have been working to rebrand or improve upon overdraft service.
TD Bank is promoting a new feature called TD Debit Card Advance, which can be added to an existing account, though there seem to be few differences from its existing overdraft service. Advance "helps customers use their debit card the same way they use it today," Acevedo said, "meaning they avoid having their debit card transactions declined when they're making important purchases."
With the Advance feature, customers are charged $35 for each overdraft of more than $5. The fee is waived if the customer covers the overdrawn amount by the end of the day the account was overdrawn. TD Bank has cut the number of times a person can be charged for overdrawing an account in a single day to five from 12.
Citizens Bank is testing a service called Buffer Zone, which lets customers overdraw their accounts an unlimited number of times up to a certain dollar amount for a "nominal" monthly fee. Citizens Bank would not disclose any additional details of the service.
McLaughlin, Citizens' head of marketing, said the service has been well received.
The Center for Responsible Lending has estimated that fees from overdrafts total more than $23 billion a year industrywide. For some major banks the lost revenue could be hundreds of millions per year.
Wells Fargo & Co. has estimated a $500 million after-tax hit to revenue in the second half of the year; U.S. Bancorp projects that full-year revenue will be trimmed between $230 million and $280 million; and JPMorgan Chase recently raised its estimate of lost annual revenue to $700 million from $500 million.
Aaron Fine, a partner in the retail and business banking practice at the consulting firm Oliver Wyman, said far-reaching marketing efforts by banks are warranted, considering the revenue they stand to lose, not to mention the difficulty reaching consumers on a broad level these days and the limited time banks had to get the word out.
"It was a major, major undertaking to try to achieve the level of customer outreach necessary to make consumers aware of the action they had to take," he said. "They actually have to be informed and be driven to take action if you want to keep that revenue, and you want to make sure they understand the situation."
Complicating matters is the fact that the overdraft charges only apply to certain transactions. Banks will still be able to charge customers fees for bounced checks or if their account is overdrawn because of a recurring, automatic bill payment. The new rules only apply to charges on debit purchases at the point of sale and withdrawals at automated teller machines.
"I think there is going to be potential confusion for consumers that overdraft has gone away," said Mark Schwanhausser, senior analyst at Javelin Strategy and Research in Pleasanton, Calif.
The overdraft campaigns aren't likely to subside once the deadline passes, analysts said. Consumers will still be able to opt in to (or drop out of) the service after Aug 15; banks will just have to stop providing the coverage to consumers who haven't explicitly consented to it by then. "It wouldn't surprise me to continue to see them push this product," Schwanhausser said. "Banks won't treat this as a product to be dismissed, they'll see it as a product they'll have to market more. They'll have to convince people why it's important to them."
Not all banks are urging customers to opt in to overdraft. Bank of America Corp. decided this year to alter its policies so customers cannot overdraw their accounts at the point of sale. Starting this fall, the Charlotte company will implement ATM alerts to warn customers if they are about to overdraw their account and will incur a $35 charge if they proceed. Citigroup Inc. has never allowed customers to overdraw accounts at the point of sale.