Making Sense of the Overdraft Fee Changes

by Kevin Lynch 15. March 2010

As many people know by now, one of the largest banks in the country recently announced changes to the way they will deal with overdrafts on certain ATM and debit card purchases later this summer. This announcement is a direct result of regulatory changes mandated by the Federal Reserve around Regulation E, the Electronic Funds Transfer Act. They've chosen to make the decision for the customer by eliminating this service completely.

We will admit that the changes are somewhat challenging to understand and it would probably be easier for us to handle these changes the same way. But franky, we don't think that is the right approach for our customers. Rather, we want to you to understand how this is going to impact you (if at all) and provide you the opportunity to make the decision based on facts.  Below I've provided some information on the changes, when they go into effect, and examples of how this could impact customers. Please feel free to comment and provide feedback. 

Regulation E, Electronic Funds Transfer Act changes in 2010

Regulation E provides a basic framework that establishes the rights, liabilities, and responsibilities of participants in electronic fund transfer systems such as automated teller machine (ATM) transfers, telephone bill-payment services, point-of-sale (POS) terminal transfers in stores, and pre-authorized transfers from or to a consumer's account (such as direct deposit and social security payments).

The term "electronic fund transfer" (EFT) generally refers to a transaction initiated through an electronic terminal, telephone, computer, or magnetic tape, instructing a financial institution to either credit or debit a consumer's asset account.

Beginning in 2009, in response to consumer advocacy groups, the Federal Reserve revised Regulation E to address retail checking account overdraft fees on certain consumer transactions. The final rule prohibits a financial institution from assessing an overdraft fee applicable to overdraft services for ATM and one-time debit card transactions unless the consumer agrees to the overdraft service for those types of transactions.

When do the new regulations go into effect?

  • July 1, 2010 - for any new consumer checking accounts
  • August 15, 2010 - for all existing consumer checking accounts opened prior to July 1, 2010

What transactions are included in the rule change?

Automated Teller Machine (ATM) transactions

One- time debit card transactions, such as gas purchases

What transactions aren’t included in the rule change?

  • Checks, including paper and electronic
  • ACH electronic payments, like your mortgage or insurance premiums
  • Recurring Visa Debit Card transactions, such as a monthly gym membership
  • Payments of an overdraft through a line of credit

What do I have to do?

In the next couple of months, you will receive a mailing from us with a form to “opt in” or “opt out” of overdraft protection for ATM and one-time debit card transactions for each consumer checking account you have with us. You will have until August 15, 2010 to respond. If we don’t receive a response from you, we will assume that you do not want the overdraft protection service for ATM and one-time debit card transactions.

How could this impact me?

If you don’t have this overdraft service as to ATM and debit card transactions, such transactions would be declined if you do not have sufficient funds in your account. For example, if you went to the grocery store and attempted to pay using your debit card, your transaction would be declined.

“Opting in” versus “opting out” of accounts with the overdraft service

For consumer accounts that have our overdraft service, here is an example of how these items might be handled differently between a customer who “opts in” or “opts out” of overdraft protection for ATM and one-time debit card transactions. Included in this example are both types of transactions.

Opt In Running Balance Result Fees
Available Balance $50

ATM Withdrawal -$200 Paid -$35
Gas purchase -$60 Accepted -$35
Ending Balance -$280

Opt Out Running Balance Result Fees
Available Balance $50

ATM Withdrawal -$200 Declined $0
Gas purchase -$60 Declined $0
Ending Balance $50

So, a retail customer who has the overdraft privilege for ATM and one-time debit card transactions, would have the items paid and be charged the appropriate fees for this service. We would love to hear your thoughts and questions about these changes. Please feel free to respond to this post and look for continuing updates on our web site.

Meeting with FISC, a Non-Profit Research Organization in Japan

by Kevin Lynch 9. February 2010

Despite the challenging  travel conditions around Baltimore yesterday, we had the pleasure of meeting with Daisuke Ishii and Yukihisa Hode, two Senior Researchers from The Center for Financial Industry Information Systems (Japan). The FISC is a Japanese nonprofit research organization founded in 1984 and supported by some 700 Japanese financial services organizations and vendors marketing to that industry. Their mission is to engage in research services pertaining to the Japanese financial services industry.The meeting was coordinated by Michael Parentice, an independent consultant based in the United States.

FISC's current research project relates to new media and social networking in Japan's financial services industry.  As input they are seeking best practice examples from leading U.S. financial institutions that are leaders in the use of social media. Based on Mr. Prentice's research, he felt that we were one of the organizations that they should meet. This was the first visit on their five day trip across the country that includes meetings with Bank of America, Umpqua Bank, and Wells Fargo. We are honored to be included in this short list of financial institutions.

As we discussed the evolution of our efforts, it became clear that there are signficant challenges to FI's involvement in social networks. The Japanese culture is one of collaboration and consensus building. So many of the initial social media efforts have focused on internal corporate use for information sharing and communication. Given the conservative nature of the banking industry, it has been very difficult to get consensus across the organization to engage their customers in the same way. It will be interesting to see how this FISC report on the US bank's efforts will impact them in the long term.  We'll keep you posted when we get the final report.

Ten9Eight: Shoot for the Moon

by Kevin Lynch 2. February 2010

1st Mariner Bank has been a strong supporter of the Network for Teaching Entrepreneurship (NFTE). NFTE's mission is to " provide entrepreneurship education programs to young people from low-income communities." The goal is to encourage entrepreneurship, increase financial literacy, and provide participants a reason to stay in school and continue their education. The Baltimore NFTE office works with over 200 middle and high school students through teachers certified to teach the NFTE curriculum. Throughout the year, the students identify a business idea, build a business plan and, if possible, establish a business. They work with mentors from the private sector to refine their business plans and develop their businesses. To encourage these young entrepreneurs, there are numerous local and regional business plan competitions, where they compete against students from other schools for cash prizes.

For those who are good enough to win these local competitions, there is the opportunity to be nominated to compete in the national business plan competition in New York, for $10,000. Ten9Eight: Shoot for the Moon , from award-winning filmmaker Mary Mazzio, follows these students, from all around the country, as they prepare for and compete in this competition. I, along with my fellow employee Wade Barnes, was the mentor for two students from Patterson High School, William Mack and Ja'Mal Wills, who are featured in this film. Their company, J & W Sensations, produces an all natural skin lotion. The film was released nationally in November and will debut on BET this Sunday, February 7th at 12 noon. I encourage everyone to watch this incredibly powerful and moving story about these young entrepreneurs.

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