New Regulation E Overdraft Rules: Are Banks Prepared?
Report Summary
New Regulation E Overdraft Rules: Are Banks Prepared?
The impact of Regulation E will be felt beyond the loss of income that had been generated by overdraft programs.
Boston, MA, June 14, 2010 – A new report from Aite Group evaluates how U.S. banks are responding to the overdraft processing changes in Regulation E, and provides a comparison and assessment of banks’ approach to implementing the new rules. Based on a May 2010 Aite Group survey of 22 of the top 130 U.S. banks by checking accounts, the report suggests that there will be a material impact upon bank income as a result of the regulatory changes.
After a period of review, discussion and public comment, the Federal Reserve Board enacted changes to Regulation E on January 19, 2010, requiring mandatory compliance as of July 1, 2010 for newly opened accounts and August 15, 2010 for existing ones. The regulation mandates an opt-in approach to overdraft coverage, allowing the customer to choose overdraft protection and agree to the terms and conditions of coverage.
Survey respondents are overwhelmingly concerned that changes to Regulation E will result in a reduction in overdraft fee income. Beyond this, however, it will affect the design of and alternatives available for overdraft coverage, core systems’ efforts to accomplish transaction identification and processing, and the marketing and processing of overdraft opt-in programs.
“Banks’ struggle in responding to the changes in Regulation E is a sobering example of the technology and analytics challenges faced by retail banks,” says Wesley Wilhelm, senior analyst with Aite Group and author of this report. “Lack of technology flexibility and analysis capabilities in their core systems limits banks’ ability to adapt rapidly and effectively select where to adapt. That such challenges exist in responding to Regulation E changes is a wake-up call for banks to upgrade retail banking core systems.”
This 23-page Impact Report contains 15 figures. Clients of Aite Group's Retail Banking service can download the report.