WASHINGTON – Credit unions and banks are preparing for an unusual phenomenon – the middle of the month payday on Sunday, Aug. 15, when millions of consumers may learn the hard way they were supposed to have “opted-in” to overdraft protection on their debit card accounts.
“Because of that, it’s going to be a free-for-all,” said Michael Moebs, who provides overdraft and other consulting services to 2,000 credit unions and banks. “You’re going to have people whose accounts are not credited that weekend and they will not have overdraft protection.”
Under the new changes to the Fed’s Reg. E, Electronic Funds Transfers Act, by July 1 credit unions and banks must obtain permission, or opt-in, from new members and customers to provide them with automatic overdraft protection on all non-recurring debit card transactions and ATM withdrawals. By Aug. 15, they must obtain opt-in for all their existing members/customers.
Because the majority of wage-earners get paid in the middle of the month, that means their credit union and bank accounts will not be credited with their pay until the following Monday, according to Moebs. “We’ve been talking with the Fed about this, asking them to move this up to the Monday,” he said.
“You’re going to get people standing in line for groceries that weekend and they’re going to get declined,” Moebs told Credit Union Journal yesterday. “It’s going to be a nightmare.”
So far, the Fed is sticking to the original deadline of Sunday.
Moebs said data his company, Moebs Services, has crunched on 1,100 credit unions and 900 banks shows fees from overdraft protection services fell significantly in the fourth quarter, based on the cutbacks at several large banks and the residual effects on smaller institutions. He projects further declines in revenues from overdraft services – as much as $600 million for credit unions in the second half of this year – but he is confident those fees will return once consumers realize the need to opt-in.
He predicted almost every consumer who currently uses overdraft protection on a regular basis eventually will opt-in. “By the end of October you’re going to see the consent at over 90%, and the consent for those who do it frequently will be close to 100%,” he asserted. “By the end of 2011 we’re going to have more overdraft revenues than we’ve ever had before.”
