I know Reg E provides an exception to the opt-in requirements for banks that decline transactions when it has reasonable belief that funds are not available. We are such a bank - we don't authorize ATM/debit card transactions when funds are not available and we don't intend to start doing so.

My question is this: Are we allowed to send an opt-in notice if we are a "decline to pay" institution and won't pay such transactions even if the customer asks us to? If so, is the customer simply opting in to the bank's ability to charge a fee, and not really a discretionary overdraft service that we provide? How would the opt-in form be worded in such an situation? It seems we'd have to word it that we have no overdraft service and we decline to pay ATM/debit card transactions when there are insufficient funds, but in the event one slips through and we are required to pay it, can we charge you? I can't see anyone who would say "Yes, charge me" if the other option is we pay it and don't charge.

We are looking for ways to continue charging fees for those instances when there are funds available at the time a card transaction is authorized, but not when the merchant actually submits the charge. We have analyzed our fees and these type scenarios make up quite a bit of fee income for our bank. We are not real time, so this appears to be part of the problem.

Is anyone else in this dillema? How are you going to handle it?

Yes we are in this dilemna and we are just going to have to take the loss of income as we are not going to authorize ATM/POS transactions that would OD an account at the time of authorization. We are real time, however, we still have these transactions that OD an account because the merchant doesn't send a timely file.

I believe that the banks are going to have to insist that merchant processors and network providers get their acts together to submit these transactions the day they are authorized. While you'll still have occasions when these type transactions will slip through (off-line & floor limits) they will be less than they are today.

Thanks for sharing Georgia. I'm just having a hard time explaining to management that there isn't much we can do, unless we want to start authorizing these transactions when there are insufficient funds (i.e. - actually offering an OD service to opt-in to). It was a shock to everyone once we did some analysis and figured out the income we'll be losing on these transactions that slip through due to timing issues.

Consider this: the Feds response to the problems with the system that cause these to slip through was that the industry should take steps to create a better system. That would lead to the loss of the income anyway if these transactions no longer slipped through.

So, perhaps it is worth thinking about a true OD product that provides income.

You're absolutely correct MS Kaybee, but our management is looking to prevent customers from benefitting at the bank's expense (having ACH/debit card transactions paid when they don't have sufficient funds and we can't be compensated with an OD fee). We realize that the income will dry up if the system improves, but we don't want customers freeriding. Maybe I should push harder for a true OD service.

It is hard to think of a way to ask "can we charge you if your charges slip through even though we have to pay it anyway". Some banks are thinking of actually starting to allow ODs from debit charges rather than reject all for not having funds - then they have something for a customer to opt in to. Of course this raises risks but if the bank feels its competition is all paying and therefore allowing customers to "opt in", it can be a competitive decision.

No easy answers here!

Don't get hung up on ACH transactions. I think you meant to type ATM instead. You can bounce ACH transactions.

You're right John, I meant ATM not ACH. Easily mis-typed.

You may also wnat to look at the method you're authorizing the transactions. We are a PBF bank, but I think we would have fewer transactions slip through the NSF crack if we were real-time. It may not recover the lost OD revenue, but would reduce the risk exposure.

I agree that going real-time would reduce the number of such instances, but not all of them (due to the $1 pay-at-the-pump merchants and those that submit charges the next day, etc.). I'm told the cost to go real time at our institution is huge.

Also look at your stand-in authorization with the network. Unless there's lots of down-time, that dollar amount ought to be reduced, I think.

You might have someone do a cost analysis of real-time if it hasn't been looked at recently. It's something I've been monitoring over the last few years, and the overall expense has been going down.

We are moving in that direction for reasons other than monetary, such as balance agreement between systems (online banking vs ATM)and overall risk. The changes in Reg E add one more reason to the list. I have it on an annual review.

There are a number of moves, some mentioned above, that banks can take in attempting to avoid the "fluke" circumstances where an overdraft occurs that a bank, given a chance, would not have authorized.

However, my read is that your concern is about the loss of income. The only way to preserve at least a portion of the income is to run an opt-in program. As Kaybee and others have noted, you can replace some of it by instituting real "overdraft protection" programs, but the ROI is far less.

It's frustrating to me that so many think it's impossible when I know banks that are doing it successfully. There's a good thread in the Private forum that offers a lot of insight.