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  Best Practices Addressing Reg E.
Best Practices Addressing Reg E.

By Robert C. Giltner and Erik M. Hoghaug

As of today, banks’ plans for how to respond to the new Regulation E requirements are in development and many have begun to execute on those plans. Bankers agree that they must do something, but many disagree on how to execute and what the ultimate impact will be.

As of today, banks’ plans for how to respond to the new Regulation E requirements are in development and many have begun to execute on those plans. Bankers agree that they must do something, but many disagree on how to execute and what the ultimate impact will be.
For those bankers who have been on a sabbatical for the past four months, on Nov. 12, 2009, the Federal Reserve announced changes to Reg. E prohibiting financial institutions from charging consumers fees for paying overdrafts on ATMs and one-time debit card transactions unless a consumer consents, or “opts in,” to overdraft service for those types of transactions.
What are some of the best practices in dealing with the challenges that the opt-in requirements will bring?
Do not view your response to the opt-in requirements as a one-time event.As the July 1 and August 15 deadlines pass and you see how successful your opt-in strategies have been, you must be prepared to continue to communicate with those customers who did not respond or who chose not to opt in. There will be many upset customers asking why their debit/ATM transactions have been declined when the bank honored them in the past. And those customers won’t be mad at the Federal Reserve – they will be mad at your bank. To successfully bridge the customer service rift this will cause, you will need to continue to reach out to those customers, informing them of why their transactions were declined and giving them another opportunity to opt in.
Direct mail is not enough. Although placing the opt-in form in your customers’ hands is a required component, you must provide multiple avenues by which your customers can respond. Having website response capability, automated and live phone systems and trained branch staff are critical components of reaching customers on their terms.
Customize your communications to customers. We believe that sending blank opt-in forms to your customers will result in a very small response rate. If customers are asked to write their accounts number(s) on a form, chances are good that they will not communicate all of their accounts, and account numbers may be difficult to read when received by the bank. Consider having customized opt-in forms where enough information about the customer’s account(s) is given but doesn’t cross any non-public data lines; for example, use a masked account number like “your account ending in *******8427.”
This is not an exercise. Do not approach this as just another compliance requirement. Like it or not, the changes to Reg. E have the potential to vastly degrade both your fee income and your perceived level of customer service, so keep your focus on those. Just stuffing the Fed’s form in an envelope and hoping for a response is not going to cut it. This is a process of continual education, communication and collecting our customers’ wishes regarding overdraft services.
As we wrote in the American Banking Association’s Bank Marketing magazine,1 the banking industry should recognize the debit card as the dominant form of payment and strategically embrace it to drive long-term industry revenues.
Finally, don’t forget that overdraft services exist because the customers who use them value them. Our customers’ need for short-term liquidity will always exist, regardless of whether regulators or lawmakers interpose barriers to our providing services to address that need.
Go forth and educate, communicate and collect those customer responses.        

Robert C. Giltner is a consulting partner, and Erik M. Hoghaug is a managing director, for Velocity Solutions Inc., Wilmington, N.C. The company is a provider of revenue enhancement strategies for financial institutions. Giltner can be reached at bgiltner@myvelocity.com and Hoghaug at ehoghaug@myvelocity.com.                

1 “Sunshine Through The Overdraft Clouds” in ABA Bank Marketing, March 2010; see also “Overdraft Reconsidered” in BAI Banking Strategies, Oct. 1, 2009.


Posted on Monday, April 05, 2010 (Archive on Sunday, July 04, 2010)
Posted by Scott  Contributed by Scott
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