Debit card issuers expect 30 percent of consumers to “opt in” to overdraft services under new rules that prohibit financial institutions from arbitrarily imposing fees for overdrawing an account.
Large banks expect 20 to 40 percent of their customers to opt in.
Smaller institutions, such as credit unions and community banks, foresee a much higher participation rate, with some forecasting that more than 70 percent of customers will opt in.
These are some of the results of the most recent 2010 Debit Issuer Study released today by Discover Financial Services, issuers of the Discover Card and parent company of PULSE, the ATM/debit network.
Most major debit card issuers, such as JPMorgan Chase and Bank of America, have already started to alert customers of the changes to its overdraft debit card policies.
If any debit card provider hasn’t implemented an opt-in choice by July 1, they will be in trouble with the Federal Reserve, which has issued the rule.
Banks, credit unions, and other financial institutions will be prohibited from charging overdraft fees for ATM and one-time debit card transactions, unless a customer consents. For existing customers, the institutions have until August 15 to comply.
The new rule virtually puts to an end what consumers and their advocacy groups have been complaining about for years – the practices of standard overdraft fees charged by banks — as much as $30 in most cases – each time a customer overdraws on an account.
For consumers who do not opt in, purchases will be denied if the amount of the sale exceeds the bank account’s balance tied to a debit card.
The issuers also say they expect to diminished debit card profitability as a result of the new rules. Furthermore, a proposal that is part of financial oversight reform under consideration by a Senate-House panel includes first-time regulation over debit card “interchange fees” that merchants are charged per transaction by the payment networks.
“With interchange and overdrafts producing approximately $118 of annual revenue per active card, financial institutions expect … lower interchange income and less profitable debit card programs, impacting debit card profitability over the next two years,” said a statement by Discover.
To combat decreased fee income, 45 percent of issuers “have already created a plan in response to the changes,” Discover said.