Sunday, January 17, 2010

Banks Beginning to Prepare for New OD Regulations

According to Sherief Meleis, managing director of New York City-based Novantas LLC, the banking industry could lose between $12 billion and $29 billion a year in checking account revenue when new regulations involving overdraft (OD) and nonsufficient funds (NSF) fees take effect. With such an adjustment taking place in the ability to generate fee income, banks are quickly determining how to communicate the upcoming (and still somewhat undefined changes) to their customers, while looking to dramatically restructure their checking portfolio. At last year's BAI Retail Delivery Conference, SunTrust SVP Hugh Gallagher stated, “We’re in an environment where free checking, if not dead, is all but dead.”

What needs to be remembered is that there is still a segment of customers who want access to overdraft services and actually rely on these services when emergencies occur or when debit card transactions are not monitored.
In fact, some of the heaviest overdrafters are aware of their behavior and do not dispute the fees being assessed according to a recent research study by Novantas and Informa Research Services.

As banks prepare to build a communication strategy in response to Reg E, it will be important to segment customers based on behavior, build a new pricing strategy for overdrafts, determine the best contact strategy and communication channels to reach impacted households and most importantly, how to adequately communicate the benefits of either opting in or opting out of the expected changes.

Success in communicating these new regulations could be worth between $10 - $15 billion annually for the banking industry.

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