Friday, April 9, 2010

Are you RegE?

Pun stolen from employee announcement. Please don't "pun"-ish me :) 

If you work in the banking industry, by now you should be knee deep in Reg E preparations. 

What is Reg E?

The Federal Reserve Board has issued new rules for Regulation E which will give consumers the right to limit the overdraft costs associated with ATM and one-time debit card transactions by giving consent or opting-in to the program.  Financial institutions must comply with the new rules by July 1, 2010. Expect that letter in the mail if you haven't received one already. Reg E was designed to protect the consumer, but it's also very confusing. How many of your members really understand how their checking account works, much less read what you mail them?

A few weeks back, Bank of America announced its plans to eliminate overdraft fees on debit-card purchases in response to the Regulation E changes. Bank of America customers will no longer have to pay $35 in fees to purchase a $3 cup of coffee if they use their debit card. Their transaction will be denied at point of sale if sufficient funds are not available. However, BOA customers will still be able to withdraw funds from an ATM and incur the fee. They will be notified and signal agreement to the charge at the ATM similar to the normal ATM fees you see today.

BOA isn't the first to announce such a change, and it won't be the last. With Regulation E changes, financial institutions will see overdraft fee revenue decrease and as the Regulations keep piling up, that affects the bottom line. These changes cost the FIs a great deal of money and time to implement. In addition, according to the Reg E mandatory Opt In rules, members who do not respond will automatically be set to an "off" status starting July 1.

Starting July 1, checks and recurring ACH payments will not require an opt-in for NSF fees. POS/Debit and ATM transactions will require the customer's consent.

So assuming an appx $3.26 billion in NSF fees, $1.82 billion will be in flux and will be determined by how many members opt-in.That's a lot of money left hanging under a "?"
Not all members who have Courtesy Pay use it today. In . In fact at our institution an estimated 17-20% of our Courtesy Pay users make up over 80% of our fee income for Courtesy Pay.
 It's amazing to see how some members rely on this service as a solution to avoiding the high costs and fees of Pay Day loans and credit card advances.

Why use courtesy Pay Services?

By the time a member endures the embarrassment of "bouncing" a check, they have a negative feeling about all parties involved.On the other hand, if you pay the balance, your member will thank you for taking care of them when they needed you most. They will gladly pay the same fee you currently charge and understand that you have provided them with a valuable courtesy.  In addition, when a member faces an emergency, they have immediate access to funds when they need them. Courtesy Pay is not a loan, it's a service offered as protection.

Interesting Statistics
  • 89% of Americans do not reconcile their checkbooks.
  • 11% of Americans who do reconcile their checkbooks - about 1/2 only do it once a year.
  • Debit cards have increased errors in checking account balances on the member's personal checkbook records - leading to more overdraft situations.
  • Merchants high check returned fees discourage customers from using checks. 
So long story short - I am in the middle of Reg E prep to code our Credit Union into compliance. Long days and long nights spent developing solutions that work for our members and our business alike.

/start geek
I started with a demand script that is subroutined from Teller Tran and Acct Mgr work areas that requests the employee gather the opt in answer form the member at the point of interaction.

We ask 4 questions, including ACH and draft options to prepare for future regulatory requirements.

The signature and answers are captured by SymForm and sent to imaging.

The answers are recorded to the share level in a interim solution tracking record.

When the patch is applied to production on July 1, the batch jobs and parameters will use the answers at the tracking level to interpret how to apply the Courtesy Pay Service.

When we load the 2010.00 release we'll move the tracking answers into the share record.

we are using the 0 and 2 options - we are not turning off NSF fees, only CP fees, and not changing our auth logic

Affecting authorizations is an adverse action and would require additional member notification
This plays more for us due to our uncollected funds option that combines with CP options for a total ODT/CP amount. We offer this as an optional service to our members.
uncollected funds = any pending ACH deposits or check holds

EX: you have an incoming ACH warehouse item for $1,000 and a CP limit of $300 for an overall combined ODT of $1300 even if the member opts out of the one time debit, they know that they have funds incoming and if they have uncollected funds service, they want their transaction to go through. The auth and post take place separately, on average about 2-3 days apart, and in most cases the money from the ACH will be posted at the time the merchant sends the debit through to post. If it doesn't, and the member does not have the funds they will be NSF, and a fee will be assessed (for the NSF)  
This is all based on our mgmt's interpretation of the Reg, and the final rulings they are interpreting from.
/end geek  
I've seen lots of different interpretations lately, such as you can't get the opt in/out answer without having your program in place, or if they opt out of CP you can't charge NSF either. Luckily in our IT dept, it's not our job to interpret and make the rules, we just get the awesome job of coming up with creative solutions to make the system do what Senior Mgmt wants it to do. (which is an honest, not sarcastic comment - I kinda enjoy the brain exercise when Regs cause all this fuss) 

Long story short - Reg E is my life until July 1 and you should answer "yes" to your Opt In request when your receive it if you want to be protected. This is my advice for these who are familiar with their finances. If you haven't balanced your checkbook, or live paycheck to paycheck - you might want to rethink your situation. Courtesy Pay is not for everyone, and like anything in life, can be abused. Be smart - get informed.

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