It looks like overdraft fees will be a popular target this election cycle (see inset). It's an absolutely predictable, and avoidable outcome, had banks done a better job of helping customers avoid debit card-induced fees (see previous coverage here).
But the genie is out of the bottle now, and the goose that laid the golden egg may soon be dead, or at least restricted to quarters (how's that for a mashup of metaphors in one sentence..sorry, sometimes you just need to get them out of your system).
The most onerous of current proposals making the rounds on Capital Hill calls for real-time notification of pending overdrafts at the ATM and point-of-sale. While that's probably not technically feasible in the short-term, it demonstrates just how expensive the remedies could be.
Today's Center for Responsible Lending press conference announcing its finding that in 2005 banks levied $17 billion in overdraft fees plus $8 billion in NSF fees (see note 1), is sure to receive plenty of press for the next 15 months or longer. For example, the headline that made it into Dow Jones's MarketWatch today (see above) includes both "gouged" and "abusive," both dreaded terms in banking circles.
So it's time to be proactive in education about overdraft-protection options. That includes aggressive marketing of systematic protections, such as automatic transfers to cover shortages and early-warning options such as email alerts (see note 2).
Mobile Banking to the Rescue
From a consumer-advocacy standpoint, the weakness of email alerts is that they are either overlooked or are too late to prevent a negative-balance situation. Mobile alerts, on the other hand, are much likelier to be read within minutes of being sent, providing crucial extra hours or even days of warning before balances fall below zero. And with mobile phone usage crossing most demographic and income lines, text messages can potentially reach farther into the lower-income segment of your customer base. Widespread deployment of mobile alerts could help soothe consumer advocates and lawmakers.
So if you have had trouble getting senior management buyoff on your mobile banking ideas, clip yesterday's American Banker article about the new legislation (here). Add this post to your business plan and run it up the flagpole (end of tired cliches… promise!).
(1) Download the CRL white paper now (here). It's well written, thoroughly footnoted, and will be read by every personal finance and banking columnist in the country. You will want to have every bank exec that speaks to the press become familiar with the arguments. In my view, there are several assumptions that may inflate the industry OD/NSF estimates slightly, but the $124/yr in OD/NSF income per account, in their pool of 4,036 checking accounts, seems solid. And whether the "real" number is $25 billion or $15 billion, it doesn't materially affect their argument.
(2) And if I were a bank, I'd look very hard at reverting back to FIFO check-clearing so I didn't end up like U.S. Bank, the example exposed in the CRL paper.