Oh joy! Just in time for the holiday!

Reg E Revisions Article

For the serious minded: Link to FRB Announcement

Well, I am thrilled!

Now if we can just get the Closed End Lending and HELOC final rules before the end of the year, that would just make for the best holiday season ever!

::yes, you read the snark tone correctly::c

Well I hate to say this, but this was a long time coming. While I can see the benefit to the customer and the bank of covering checks written by a customer (who wants their mortgage payment bounced because they are $1.50 short?) - charging a $39 fee for an ATM or debit card transaction that was $1.50 over the balance was just getting out of hand.

It was only a matter of time before stories of the $45.00 Latte would start circulating, and in light of the events of the last year, is anyone surprised?

ETA: I read another article where the Fed came out with this now for perhaps a couple of reasons:

1. To forstall another Congressional Act that might be more draconian.
2. To show that the Fed really is paying attention to consumer issues and that a separate agency isn't needed.

Time will tell if the strategy workes.

Am I correct that this not only applies to banks with automated overdraft programs, but even the banks that have someone manually decide every day which items to pay or return?

From what I read, it only covers overdrafts created by ATM and Debit Card (thus the $45 Latte issue), but not for checks that are written by customers.

And if the at the time of atm wd they were fine, but by the time they processed and the mortgage check got in first thus causing the atm wd to look like an OD, then... ???

From page 53 of the final rule:

The Board recognizes that financial institutions and consumers have imperfect information as to the balance in the account at the time of the transaction. Financial institutions face operational limitations in processing transactions, and in tracking the consumer’s actual balance, because transactions may not be processed in real-time. Similarly, even if a consumer checked his or her balance prior to a transaction, the balance may not be updated, so the consumer may inadvertently overdraw his or her account on the belief funds are available.

On balance, the Board believes financial institutions are in a better position to mitigate the information gap by developing improved processing and updating systems, as they have in recent years, and as the Board expects they will continue to do over time.
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If your customer does this more than a few times, then close the account - or take away their ATM/Debit card. That's one way to mitigate the information gap.

There is no reason that a consumer should have imperfect info...they control the checks written and ATM withdrawls...

talk about no accountability...

What they need to do is force merchants to send their transactions same day if they want to get their money. Any transactions not processed timely would then be subject to return.

We saw this huge run-up in advertisements and marketing campaigns to encourage people to use their Debit Card instead of cash or checks. Using the Debit Card to purchase piddly items such as a burger and fries, coffee-mocha-latte, your sandwhich at the cafeteria, or a pack of gum at a convenience mart was heavily marketed as "thee way" to go - be hip, be cool, yadda, yadda. (I know - these ads were mainly from VISA and Mastercard, but remember all of us evil bankers are thrown into the same bucket.)

Add to that, many institutions encouraged people to use their Debit Card (greater interchange fee income) with automatic sweepstakes entries, added bonus points - what-have-you.

And the Debit card IS a neat and convenient way to pay for purchases, but if you are going to use it that way, you really need to have about a $100 cushion in your account to avoid the pitfalls of maintenance fees and other forgotten deductions that reduce your balance.

Problem is - these cards were marketed as heavily to people that did not have that kind of cushion as it was to people that did. So was it really a surprise when people started hitting just below their account balance when swiping their card for those fries and a chance to win a sweepstakes?

As you sow, so shall you reap - I guess.

Now that the wild party (for both banks and consumers) seems to be just about over, I guess all of us will need to sober up - banks will need to be less exuburant with the fee programs, and consumers will need to learn how to budget and live within their means.

Or how about going back to regularly checking and balancing their checkbooks so they can be personally accountable for what they have, or don't have.

I cannot blame the banks here... no one pulls the debit card out of your wallet for you, no one hands it to the cashier for you, no one signs the receipt for you. You do. You are the sole reason you incur a fee. No other.

We can complain all we want, but some banks have done some pretty raw things to consumers in the name of fee income. The problem is that some of us have simply taken advantage of consumers who don't pay attention their account balance or don't understand how ATMs or single-purchase debit card transactions work. Some of the OD charges I've read about for a few dollars in purchase made me ill, because I knew what was going to happen. And it did. And don't think Congress will back down just because the FRB issued a rule.

Under the new rules, if they don't opt-in, they won't be able to make their purchase. That means, they won't be able to get that cash late at night to cover an emergency, or pay for gas at a station in the middle of nowhere in western Kansas on a cold night. Then they'll blame the banks for not letting them get their money.

All I can say is that we better do a good job in explaining to customers why they might want to opt-in.

Poesy. Pure poesy. If we ever meet, tell me I owe you a beer.

You gonna pay for it with your Debit card?

Just think of us as financial bartenders. Sorry fella, you've had enough to drink already.

Has anyone given any thought about what will happen when you have an offline situation? And VISA's offline limits?

How will this work?

Unless the customer has opted-in for overdraft services, the bank will be prohibited from charging any overdraft fees if the tranaction causes an overdraft.

Thanks, Randy.

You can still return the item though, is that correct?

Thanks again.

How would you return a POS or ATM transaction?

Don't mind me - it's Friday - and I'm losing my mind.

No problem Tigg. I was just trying to figure out if I was missing something.

Well - at least decoupled debit cards are not covered:

Page 30 & 31

Several commenters requested that the Board explicitly exclude decoupled debit transactions from the scope of transactions covered by the final rule. Decoupled debit cards are debit cards offered by institutions other than the account-holding institution that consumers use as they would any other debit card. Transactions for these cards originate as debit card transactions paid by the card issuer, but are received and processed by the account-holding institution as ACH transactions.

The final rule prohibits a financial institution that holds a consumer’s account from assessing a fee for paying an ATM or one-time debit card transaction. Accordingly, overdraft fees charged by the account-holding financial institution for a decoupled debit transaction processed via ACH are not generally subject to the opt-in requirement of the final rule. For clarity, new comment 17(b)-1.i states that § 205.17(b)(1) applies to ATM and one-time debit card transactions made with a debit card issued by or on behalf of the account-holding institution.
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Brought to you by the Glass-Half-Full Department.

What is amazing to me is that this new Reg seems to cover ALL debit card transactions associated with checking accounts, NOT just those cards associated with an account that has a courtesy pay limit. This places banks in a very new and strange situation: in order to be able to charge for any debit card overdrafts, they must get the customer's approval to do so. I wonder if this was really the result they were after? There will be unintended consequences.

That is precisely the result they were seeking. The regulators are tired of hearing consumers moan about being pillaged by bankers. And even though the really abusive banks are a minority, the rest of the industry did let them get away with their fee-frenzy far too long.

Wait until August 15, when all those opt-ins fail to come in from existing customers and bankers have to deny all the overdraft junkies. There had better be a whole lot of backup in the customer call centers on Monday, the 16th!