Since the implementation of the Federal Reserve's Regulation E in August 2010, banks have been forced to get customers' permission to sign them up for overdraft services. Well, according to a new study by the research firm Corporate Insight, banks are still figuring out how to sell checking account overdraft services now that they can no longer just automatically enroll customers:
According to Corporate Insight's research, 88 (percent) of the banks reviewed currently allow clients to opt in to at least one overdraft service option online; however, in most case overdraft protection and overdraft coverage are still not being showcased. While many banks contact cardholders through the mail to alert them to these new benefits, clients should be able to learn about new options and sign up online.
From the looks of the survey, when they are promoting overdraft services, banks are pushing the less-attractive option, overdraft coverage, which involves a short-term loan from the bank to cover an account shortfall and a fee around $35, rather than overdraft protection, which transfers in money from a customer's savings account or money market account to cover a checking account shortfall for a smaller fee:
While all but one firm offer overdraft protection transfer options, only seven banks enable users to set these transfers up via client-access websites -- Chase, Citibank, E-Trade, PNC Bank, U.S. Bank, Wachovia and Wells Fargo.
This lack of an aggressive push to market overdraft services is probably a good thing for consumers, since for many people, any kind of overdraft service is probably a worse option than simply having a debit card transaction declined and grabbing an alternative form of payment, such as a credit card, out of their wallets. Sure, it's inconvenient, but is convenience, especially for small purchases, really worth $35 a pop?
On the other hand, banks seem to have eased up somewhat on their draconian overdraft coverage terms since the programs became voluntary:
Six banks waive overdraft coverage fees if an account is overdrawn by less than $5 at the end of the day; Bank of America, U.S. Bank and Wells Fargo offer no-fee overdrafts up to $10.
My feeling is that banks will eventually wake up and start pushing these services, especially overdraft coverage, more aggressively online and in branches. After all, they're used to a revenue stream in excess of $37 billion a year from overdraft fees, and they're going to start to miss that money.
My hope is that consumers resist fee-laden overdraft coverage; as my colleague Greg McBride often points out, the best option for consumers who want to be protected at the register in case their checking account is empty is linking it to a savings account and paying significantly less for each transfer.
What do you think? Has your bank been aggressively promoting overdraft services? Would you rather be declined at the register or pay a fee?