No one knew exactly how much revenue banks stood to lose from the new overdraft regulations. But nearly everyone assumed it was a big number.

Yet nearly two months after the deadline for banks to stop supplying overdraft coverage to customers who did not give their express permission, overdraft is alive and well.

The final results are not in yet, but anecdotal reports and data suggest that the expected declines in overdraft business will probably be shallow.

If the final numbers bear out this initial impression, banks can breathe a sigh of relief and keep doing exactly what they did before. They might also take the opportunity to figure out how industry and consumer advocates alike underestimated customer demand for overdraft.

"The American consumer wants overdraft service," said Mike Moebs of Moebs Services, which just released one of the most detailed — and, from banks' point of view, optimistic — studies of overdraft trends to date. "We've had a hard time trying to convince people of that."

The Moebs data, gathered from a survey of almost 2,300 banks, say opt-in rates ranged from 60% to 80%, with nearly all frequent overdrafters — that is, those with 10 overdrafts or more a year — giving their consent.

Because of this, the Lake Bluff, Ill., research firm predicted, overdraft revenue for 2010 will come in at $35.4 billion, slightly less than $2 billion below its 2009 peak.

In 2011, Moebs said he expects, overdraft income will reach a new high.

Customer affinity for overdraft protection may not be the sole reason for the high retention rates.

The Federal Reserve's amendments to Regulation E, requiring banks to obtain customer consent before enrollment in overdraft coverage, left plenty of room for aggressive but uninformative opt-in marketing campaigns, some consumer advocates say.

Leslie Parrish, the senior researcher at the Center for Responsible Lending in Durham, N.C., noted that neutrally worded surveys by Nielsen Co. and other such firms found greater skepticism toward overdraft coverage than such high enrollment rates would imply.

"I'm a little bit surprised because it runs so counter to what consumers have stated their preferences are," she said. The discrepancy between such surveys and actual opt-in rates may therefore in part be the result of a very hard sell, she said.

But Moebs and other analysts argue that the industry and its critics both underestimated consumers' willingness to take on overdraft-protection fees.

"When I looked at the banks' estimates early on, they were between a 10% reduction and a 90% reduction [in revenue] — all over the place," said Wesley Wilhelm of Aite Group in Boston, who predicted a 26% drop in overdraft revenue in June and said he has since been surprised by how strong initial enrollments have been.

One problem may be that banks' thinking about overdraft protection was more similar to that of the fees' critics than executives wanted to admit.

If they believed overdraft credit lines were something consumers wanted, why weren't they convinced that consumers would agree to take them?

The pessimism made sense given how the banks had been using the fees. Automatic overdraft credit lines were a "product" that had never been treated like one: Banks did not advertise it, customers did not sign up for it, and competition over its price and features did not occur.

If viewed as a form of credit, this particular variety of overdraft protection made payday loans look cheap.

A June study by Aite found that banks expected 41% of their customers to enroll, on average.

Despite opt-in marketing campaigns, executives talked about finding a substitute for big revenue losses and a shift away from free checking.

Even the American Bankers Association made overdraft-protection fees sound fundamentally punitive.

In a Sept. 9 press release defending them, the trade association's senior counsel, Nessa Feddis, likened an overdraft to a "parking ticket."

"I heard [a banker] call it a 'dirty little secret' once," Wilhelm said.

"They didn't treat it as a product. They just did it."

Moebs and Wilhelm say that the volume of customers opting in demonstrates that it is well past time for banks to reconsider how they approach overdrafts.

"The American consumer, seven times out of eight, if you ask them, will tell you that the overdraft service is not a penalty," Moebs said. "They view it as a service. And they're confused as to why over half the banks and credit unions out there view it as a penalty."

Under Moebs' preferred approach, banks would recognize this and charge accordingly. The minority of banks that reduced the cost of their overdraft services with the revision of Regulation E have maintained their overdraft revenue better than those that did not, he said.

And it may not be a coincidence that overdraft enrollment rates are higher at small banks, which tend to charge fees closer to an overdraft's approximate $13 cost than do their larger peers.

"If we took a perspective of saying that this is truly a service, then a price in the range of $16 to $19 is very reasonable," said Moebs.

He added that he believes the attention to overdraft fees this year may have made consumers more aware of relative pricing and practices such as high-to-low processing.

Not everyone misunderstood overdraft protection, Moebs and Wilhelm said.

The best understanding of consumer behavior may have come from the Fed, which did extensive research on customers' overdraft behavior before issuing the Reg E rule changes.

Given the furor over overdraft protection, and the apparent misunderstanding of customer demand by banks themselves, the government could easily have dealt with the issue more harshly.

"The Fed attorneys who drafted the regulation should get an award for this," Moebs said.

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