Overdraft Fees: Widening the Compliance Lens

Complying with the recent changes in overdraft fee regulation requires utilizing customer information to build better pricing models and segment customers more effectively.

Dallas 2010/June/1 : By Jim Henschel

When Michael Jordan retired from the Chicago Bulls, he is said to have teased Bulls Coach Phil Jackson, “Now we’ll see if you can coach!”
Today the same might be said about consumer banking. As fee income plummets in the wake of Regulation E overdraft rule changes, we’ll now see who is good at the fundamentals of consumer banking. We’ll see who can win back that lost income with better, more transparent, customer-tailored banking.
From a pure compliance standpoint, the impact from the Reg E change is relatively slight. The regulation is clear and crisply written. In many cases, complying will not take much more than some DDA system changes, a disclosure notice of the opt-in procedures and the flip of a switch before July 1.
But is this about compliance, or is it a much-needed opportunity to change what was not sustainable anyway – an outsized reliance on overdraft fees – in favor of a more transparent, positive kind of consumer banking? (That the heaviest overdrafters were willing buyers and ungrudging payers at all income levels is true but ultimately beside the point, trumped by anecdotes of unwitting customers paying punitive fees for minor transgressions.)
We believe that banks can use this occasion (and all the other pending changes in Washington) to do what they have long resolved they must do: fully align their value propositions with the needs and sensitivities of different groups of customers. In doing so, they can gain competitive advantage and market share. Banks already have the technology, business intelligence, and analytics to accomplish this. Now they have the unavoidable impetus.