Community banks offer many deposit account services to best address consumer needs. These include a variety of overdraft payment programs, and alternative services that allow customers to transfer funds from a designated account or line of credit, or to advance funds from a short-term, small-dollar loan to avoid an overdraft.
Over the last several years, a variety of e-commerce transactions capable of causing overdrafts, non-sufficient funds, and other fees now include, not only ATM and POS debit transactions, but also online and mobile POS transactions.
As a result, community banks have continued to expand the features of overdraft payment programs they provide to consumers because when overdrafts occur, it is generally in the consumer’s best interest for their bank to pay items/transactions rather than returning the items unpaid and triggering returned item and various payee fees levied by merchants, utilities, landlords, and other creditors.
Convenient, consumer-demanded services are an important aspect of community banks’ relationships with their customers. Increased scrutiny of overdraft services has affected how community banks offer, monitor, and managing these services, Yet, despite the negative regulatory landscape, most community banks continue to offer the service to fulfill consumer demand for overdraft coverage.
Attempts to impose price controls or caps on the number of overdraft fees a bank may assess would cause banks to reject more transactions which would create a negative balance in an account – doing a disservice to the customer and placing new burdens on check processors and payment systems that would have to handle returned checks. For a consumer, the negative impact and consequences of a rejected transaction is far worse than incurring an overdraft fee.
Vice President, Regulatory Counsel
Vice President, Payments and Technology Policy
Sauk Centre, MN