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.

Comments (39) -

1st Mariner Bank
3/15/2010 3:33:49 PM #

New blog post: Making Sense of the Overdraft Fee Changes blog.1stmarinerbank.com/.../

beyondthearc
3/18/2010 10:38:14 AM #

Would you rather have your debit card declined, or pay an overdraft fee?  @1stMarinerBank lets you decide. http://bit.ly/a5DzB1 #banks ^SR

Rosemarie
Rosemarie
3/19/2010 7:54:25 AM #

I have been a customer quite some time.  Having the overdraft proctection is great.  It does stop a lot of awarkness momnent when you are shopping and you have not kept up  with your account.  

I have been blessed that I have not had to use it, however I will still keep it just in case.

Kevin Lynch
Kevin Lynch
3/23/2010 1:19:41 PM #

Rosemarie,appreciate you taking the time to leave a comment. I think you provide a great illustration of the point; let's provide customers with the opportunity to make the decision themselves. Thanks for being a loyal, 1st Mariner customer!

Mel
Mel
3/24/2010 3:15:56 PM #

I believe, Bank of America, is allowing people to withdraw money from their accounts, and accepting the overdraft fee, is 1st Mariner not doing this?

Personally I would welcome the awkwardness or some might call it awareness at the checkout line, rather then the fees.   These  fees are to high, maybe 1st Mariner might consider doing a percentage fee, for example, if the account is overdrawn by $100, instead of charging per transaction, charge a percentage, let say, 0 .7% of the amount over drafted, that way the bank is still making money and the customer isn't being gauged.  I keep our account above water, but for some people those fees destroy them.

Looking forward to your response Mr. Lynch.

Kevin Lynch
Kevin Lynch
3/24/2010 5:56:09 PM #

Mel, thanks for taking the time to respond. I'd suggest you review the Bank of America web site for their public response to their new policy.  Here is the link: learn.bankofamerica.com/.../...-your-accounts.html. We are actively looking at our process for handling these overdraft situations and will certainly consider your suggestions. Look for more communications from us in the future. Thanks again for your feedback, we really appreciate it.

anna
anna
3/24/2010 8:07:32 PM #

I am so thankful that the government stepped in and ended this unfair practice.  I would rather be "embarrased" at the check out line than accidentally be charged an extra $35 and the worst is when you have multiple withdrawls/charges and the bank PURPOSEFULLY orders the transactions so that the largest (the one that puts you over your limit, or below your balance) goes through first and then you end up with a scenario that looks more like this:
balance  - $40
Starbucks- $3
lunch on- $8
parking meter  - $1
gas from 3 days prior - $41.00

And what you get is not a $11 negative balance - you don't get charged the fee for the one that sent you over.  No, you get a $35 fee x 4 meaning your balance is over a hundred dollars overdrawn because they put the largest withdrawl FIRST.

Do the research and see the astronomical profits that banks have made from these practices over the years.

I for one will be opting OUT.

David
David
3/25/2010 1:28:34 PM #

i think that overdraft protection is a good thing but it will be made into a bad thing by people who will take advanage of the ability to do this. from your example, u would keep paying all of the charges to the card and charging the fees but if they don't intent on paying it hurts us, the consumer. is there a limit when u will stop paying? is there a time period being negative before u stop chargers to the account? there is alot of information still needed before i would think about this. Also, with this type of coverage, is there any fees related to having it?

Kevin Lynch
Kevin Lynch
3/25/2010 2:53:59 PM #

Anna, I appreciate you taking the time to respond and walk through the example. Sounds like you really understand the process and can make an informed decision. The process of paying the largest item first really goes back to the days of checks, well before the proliferation of debit cards. The feedback from customers was to pay the larger items first, like their mortgage or car payment, before other things. With the change in the regulations, we are looking at all these scenarios to determine our approach going forward. Thanks again for your feedback, we need to hear what our customers think.

Kevin Lynch
Kevin Lynch
3/25/2010 3:05:08 PM #

David, thanks for the comments and questions. Our current Overdraft Courtesy limit is $500, including any overdraft fees. We will suspend the service if the account remains negative for over 30 days. We do not charge any fees for the service other than the standard overdraft fees for the items paid. As I've mentioned in other responses, we will be communicating more information to our customers in the weeks ahead so you can make an informed decision. Thanks again.

C. Gamble
C. Gamble
3/29/2010 3:37:29 PM #

I like that fact the people have these new options available and that is does not affect automatic payments.

I think it will help people who are new to banking and do not keep track of their transactions by writing them down or paying attention to their reciepts.  Especially those young people who are just coming out of high school because many times they do not realizing that all debit transactions have to be processed.  Some are come out your account immediately but most can take up to 10 days. So they can realized, "It's not what your balance says.... but what you have actually spent vs. what you have deposited!  

As a  speaker and someone active in the community, I think it important because many new to banking are not fully educated on this.  They just open an account.  1st Mariner Bank may want to do a community relations program or cool brochure to help those new to banking understand this; especially high school students!  Then, they won't get those four $35 charges for money they've already spent in many cases like fast food purchases, starbucks, etc.

Thanks for getting the word out to us earlier!

I especially appreciate and want to recognize your understanding staff  member,  Ms. Horton, The Odenton Branch Manger who assisted me during the blizzard!   She truly exemplifies the highest standard of customer service. She listens to the customer and set the tone for the branch's atmosphere to their customers. The entire Odenton, MD Staff is always friendly everytime I visit the branch!

N.A. Angelozzi
N.A. Angelozzi
3/31/2010 3:49:17 AM #

I'm w/ anna & mel. Opt me out. I'd rather be embarrased than charged such a large fee.

Kevin Lynch
Kevin Lynch
3/31/2010 12:44:41 PM #

Thanks to everyone for their comments. It is great to get this direct feedback before we actually start the communication process later this summer. Our goal is simple: to educate our customers about how these changes could impact them so they can make the right choice for their personal situation. Sounds like many of you have made your choice already.
Also, thanks for recognizing Jessica Horton and the staff at the Odenton branch. It is always good to hear such positive comments from our customers. I will make sure to pass this on to her and the rest of the team!

Ken
Ken
4/2/2010 4:31:16 PM #

Overdraft is great in a pinch, but as stated in previous reply > charges get put in ( INCONVEINT ) order ... I have proven this against other banks and they argue they don't control it.    The overdraft should be at-time-of-event approval    unless  the account has overdraft protection ( ie. overdraft credit line )    I have personally had too many instances in past year causing TOO much in overdraft fees, my credit is not bad but I am constantly denied the overdraft credit account to reduce overall slam of fees that never seem to be one at a time, more like three and four, and $20 in charges overdrawing an account >> should not cost $140 more for a total of $160.   >>>  Overdraft credit lines should be a little easier to acquire <<<

Susan
Susan
4/3/2010 1:50:00 PM #

I would like to see 1st Mariner have a checking account linked to a savings account that would fund an overdraft. I have this on another account and they charge $10 per transfer. TY=his beats $35 for od and avoid declined purchases. That bank also notifies me when my balance is at an amount that I select.
I would like to continue to bank with a LOCALLY OWNED BANK. This is important to me.
I ask about these 2 services whenever I talk to a 1st Mariner representative.Thank you for considering.

Kevin Lynch
Kevin Lynch
4/6/2010 4:54:19 PM #

Susan, thanks for the comments and suggestion. We've explored linking a savings account for overdraft coverage and, unfortunately, our account systems don't support that option. Through online banking, we do allow you to set up alerts to identify different criteria for notifications, like a balance threshhold or when an item hits your account. In May, we are introducing a Personal Financial Management software that will provide even more alert functions for both your 1st Mariner accounts and other accounts as well. Keep an eye on the web site for more information in May. We certainly appreciate the feedback and encourage you to keep sharing your ideas with us.

Kevin Lynch
Kevin Lynch
4/7/2010 12:51:06 PM #

Ken, thanks for your comments. As I mentioned in a response to a previous writer, the process was set up to handle large to small transactions based on the "make sure my mortage/rent is paid" approach. With the proliferation of debit cards, transaction behavior is much different. In lieu of an overdraft line of credit, I'd encourage you to consider setting aside some savings as your own emergency overdraft protection. You could manage this through online banking yourself by monitoring your account regularly and transfering smaller sums to cover shortfalls.

LaRae
LaRae
4/7/2010 4:05:32 PM #

I appreciate Kevin's reply and agree that a percentage should be applied instead of a set fee.  If I overdraft my account by $1.31 it cost 30 something dollars.  We are poor and barely making it on our income.  I appreciate the overdraft protection but am in total disagreement of the astronomical fees associated with the minor infractions.

Jessica
Jessica
4/16/2010 3:14:39 PM #

Are there any plans to create a blackberry application?

Tricia
Tricia
4/16/2010 8:03:49 PM #

Wondering what banks and credit unions are planning to charge customers/members for ODS with this regulation.  
Are you increasing fees on ODS for ATM/Debit?
Are you structuring ODS differently due to Reg E?
What do you expect opt-in rates to be?
What is your approach in targeting your customers/members?
Are you increasing fees in other areas to make up revenue?

Ron Lewis
Ron Lewis
4/18/2010 2:58:44 PM #

As others said, stop charging per overdraft transaction. Overdraft fees should be a percentage. That would solve a lot of problems already. Both bank and customer would be neutral over whether the large check is paid first or the small check is paid first. When you charge a per-overdraft-transaction fee, your paying the large check first puts the account into the red so you get two overdraft fees. But if you charge a percent of amount overdraft, then it really does not matter which check you pay first, because the overdraft charge is the same. Then, you should give customers the choice whether they want the checks paid with overdraft fees or they want the checks declined with no overdraft fees.

Consider that $35 overdraft charge would be 100% of a $35 check, 5.8% of a $600 check, and 1000% of a $3.50 check. Therefore, charging somewhere between 2% to 10% overdraft fee would be fair.

Kevin Lynch
Kevin Lynch
4/19/2010 3:01:45 PM #

Jessica, we are not developing an ATM/Branch locator application for Blackberrys. However, we have started a project to roll out a complete mobile banking solution that will provide access to all your online banking accounts through your Blackberry. This is slated to go live later this summer. Once that is up and running, we will deploy the ATM/Branch Locator later in the year. Stay tuned.

Kevin Lynch
Kevin Lynch
4/19/2010 3:08:34 PM #

Ron, you make some good suggestions. In all likelyhood, we won't be changing the way we process overdrafts right now. Given the rather tight timeframe for communicating these changes to customers, we are focusing on that aspect first.

Kevin Lynch
Kevin Lynch
4/19/2010 3:15:01 PM #

Tricia, you ask some good questions. Since it appears that you work for a financial institution, I'd love to talk to you about it directly and hear your thoughts. I'll send you an email and see if we can set up some time to talk.

Brian A.
Brian A.
4/20/2010 7:13:37 PM #

The Overdraft service is nice and it allows for transactions to go through without the awkwardness of having a $3 purchase from McDonalds rejected. However, at what point does 1st Mariner (and all banks for that matter) draw the line on customer gouging. I noticed one other comment above which detailed a list of transactions and the result of the account being overdrawn. I believe her comment was more addressed to the priority of transations. I would like to ask why I had 4 transactions under $10 each post last year and each one of those resulted in a $35 fee. So essentially I paid 1st Mariner $140 for them to "loan" me $40 for less than a day (since my Direct Deposit went in the next day). This was the result of an error on my part sure, but do you really need to charge me $35 because my $3 McDonald order went through. As I calculate it I paid 1st Mariner Bank 126,000% APR . I dont think I need to illustrate how I calculated a simple interest equation for you here,but you see my point. If you truly had your customer's best interest's at heart, why not charge a percentage of the transaction up to a predetermined limit? I would say that this has nothing to do with the customer's best interest's. It is a wonderful spin to compare the 1st Mariner approach to BoA's approach and declare it is for the customer's best interest, but when it comes down to it the best approach for the customer would be to restructure the entire OverDraft Fee schedule. But 1st Mariner, like all other banks, won't do that because a significant portion of the bank's revenue and ultimately profit come from Fees, such as Over-Draft fee's. That is the reason the High-Low check processing is defended by banking institutions. It nearly guarantees multiple OD fees will be collected when a person runs their account into the red. I can understand that in the days of "bouncing" checks, the customer would want the Mortgage or Car Payment made and the other items could bounce as they were less important. But because the bank pays all the items now, the only reason to keep that transaction processing methodology is to gauge customers. Of course, 1st Mariner isnt the only bank that does this, its an industry wide tactic that ensures the bank makes off with more of our money than we do. For Instance, in these days of EFT, and Internet transactions, why does it take a deposited paycheck 5 days to clear? It's because the bank holds onto our money for a day or two to place into Overnight Money Market accounts and earn some interest on them. We did the same thing in Structuired Finance, delay the payment for a day (and it is conventiently written into contracts that it may take XX days to "process"), stick it into a MM account and it earns the bank a couple thousand bucks. Multiply that by 365 days (since MM accounts run over weekends as well, weekends make them the most money) and you have quite a return for the bank actually doing nothing.

Oh well, does it really matter? Nothing ever changes in favor of the consumer, there is never a consumer bailout huh?

Kevin Lynch
Kevin Lynch
4/23/2010 3:58:03 PM #

Brian, thanks for taking the time to comment. As I mentioned in earlier posts, we are looking at numerous options to address overdrafts processing in the future. If and when they change we will communicate them to our customers.\nOn the deposit side, the hold period is not for investment purposes. It is to limit our losses from rejected deposit items at other institutions. Even in todays environment, there can be delays in funds clearing an account. Signing up for direct deposit of your paycheck is a great way for consumers to ensure their funds are available when the deposit is made.\nIn this highly regulated, complex environment, we do keep the needs of our customers in mind. I appreciate your feedback.

F McNally
F McNally
4/24/2010 4:30:23 PM #

While most banks will not directly admit it, customers who have a tendency to overdraft their accounts - whether through mismanagement or just plain overspending - are moneymakers.  Make that repeat moneymakers.  Like my old boss told me: "A customer who is a slow pay now will always be a slow pay."  The chronic overdrafters are brought up in most monthly bank meetings.  I prefer never to have overdraft protection.  If I screw up (and we all do), it's a good wake-up call.  Sure, it costs more, but for the few of us, apparently, who bother to balance our checkbook to the penny every month, it keeps you honest with your income and outflow.  I can't tell you how many educated peopel I know - professors, lawyers use the "round-up" method, because they don't want to spend to the time to figure out just what their bank balance is, month to month and year to year.  And unfortunately the reliance on Qucken and MS Money make it somewhat simpler but you still have to check the figures.  In the old days, prior to the the FRB's adoption of electronic presentation, you may have had 1-3 days for a check to clear (I did work for an FRB in the mid 80s).  This is not the case anymore.   There is no float.  No RCPC 2-day designations. Your checks  -- and especially ATM transacations -- clear the next day (if not the same).  If you're lazy and don't balance your account or keep keep track of a running balance in your checkbook (subtracting each time you make a purchase), you will pay the price. And while you think the fees are usurous, in the 80s they were $18 per overdraft - and 20+ years later, $35 is about in the same ballpark with inflation and the dollar devaluation.,   A handful of $35 overdraft charges a year can wipe out whatever you earned in interest on a small, simple IRA.  So if you're lazy, you may want to try some computer-assisted option, like Quicken or MS Money, though 1st Mariner doesn't support either well (sorry guys).  The best thing to do if you find yourself a chronic over-drafter, is to get rid of the ATM card and pay with cash.  You'll save yourself money in the long run.

Kelly
Kelly
4/26/2010 3:02:30 PM #

Glad to have the choice of Opting Out...Things happen and sometimes others can get a hold of your card and debit, debit, debit, and then you are stuck with all these charges.  I myselft do the best to keep the books up to date however, others do not and will never get a head unless they are aware of Opting Out.  Opting Out is a great idea for most people because they can become quite poor if they do not! It is important to make people aware of these changes so, I hope that when sending these statements, they are in BOLD CAPITAL LETTERSSmile

Kevin Lynch
Kevin Lynch
4/26/2010 5:28:16 PM #

Kelly, we will be sending out multiple communications via the U.S. Mail and email to ensure we give every customer the chance to respond. Thanks for your comments.

kelly c.
kelly c.
6/2/2010 6:19:46 PM #

Love the overdraft protection feature and will be opting in.  I only wish that 1st mariner will pay the transactions as they come in, not the biggest one first.  I can live with a $35 overdraft fee, but when the biggest transaction is processed first and you have 6 pending transactions, each of those transactions can cause a $35 fee.

Jane
Jane
6/3/2010 7:17:14 PM #

I've been with 1st Mariner for a little over a year.  Not by choice,  only because my husband has been with you.  I absolutely hate the bank and their ridiculous "extra" fees.  Being charged $$ for making debit card purchases - really - then why have a debit card other than to withdraw cash from the banks ATM machine.  I am trying to convience my husand to move our $$ to my credit union - which offers overdraft free of charge and doen't not charge when making debit card purchases.

Regina Jendrasak
Regina Jendrasak
6/3/2010 10:54:02 PM #

Lets go back to the days when (if you didn't have it in your bank account you didn't spend  it.)  So you can keep paying $37.00 for a cup of coffee if you wish but at least you have a choice now....Thank the Lord  So make the right choice OPT OUT

Steve Ferry
Steve Ferry
6/4/2010 7:49:35 PM #

Kevin--I know $35 for some may seem trivial, but for those who can not manage their money it can hurt them deeply.  You have indicated that you cap your overdraft protection at $500 and require 30-days to pay it back.
  I suggest that you assess a fee ($35 to $50) one time and provide a loan for the prearranged amount in the event an overdraft situation occurs.  The loan could be in the form of a line of credit the customer qualifies for when the account is opened or at a later time.  For your protection you may need to qualify the customer for the line of credit periodically and of course if they abuse the 'privilege' it goes away.
  The loan would be a short term loan at a market rate (X amount over prime).  Fees are applied to offset the cost of doing business, so the loan could be good for 6 months to a year and be capped at the $500 limit you already have in place. The bank does not lose money and the customer does not endure unrelenting fees.
There should be a system in place to alert the customer that they have exceeded their balance on hand.  (Anna's comment on March 24 is a good example of how the 'convenience of over draft protection can escalate out of reasonable control!)

N.A. Angelozzi
N.A. Angelozzi
6/6/2010 11:08:15 PM #

Opt out

Leasa
Leasa
6/7/2010 3:51:49 AM #

Ok.... what happened to if you don't have the money you can't spend it? I'd much rather have my purchase declined than make the bank CEO's a little fatter. We get fleeced every which way.  One day we will all be broke anyway and it won\\t matter- it will all be going toward new taxes.

Kevin Lynch
Kevin Lynch
6/8/2010 12:23:45 PM #

Jane, I'm sorry your experience with us hasn't met your expectations. One comment about the charge for debit purchases. If you choose to use the card as a credit transaction, you are not charged at all. You may want to choose that option the next time you use your card.

Kevin Lynch
Kevin Lynch
6/8/2010 12:31:53 PM #

Steve, thanks for your comments. We actually offer an Overdraft Line of Credit as well. Unfortunately, not everyone who could use it qualifies for it. So our Overdraft Courtesy is the option for those customers. I'd also like to point out that there are options in our Online Banking to set up alerts, such as a low balance alert, to notify customers about activity on their accounts. This can certainly help customers avoid those surprises that lead to unecessary overdraft charges.

Bill
Bill
6/8/2010 11:26:27 PM #

I'll be opting out. My credit union (NFCU) offers a line of credit but I don't get charged a transaction fee if I access it. I never did understand why FMB would charge for this overdraft courtesy. I agree with Ron about how the percentages break out. Kevin, there is always enough time to save your customers money, I'm sure we won't mind the short notice.

Phyllis Frederick
Phyllis Frederick
8/19/2010 8:07:16 PM #

I would like to opt out of this recommendation.  I don't believe I have been overdrawn since joining your establishment, but would rather be embarrased over a small amount than pay an additional fee in an unfair amount.   I too feel that there has to be a more amicable way to handle this situation



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