New law expected to affect ATM withdrawels

Forty-nine percent of bank customers decided against signing up for checking-account overdraft protection by last month’s federally mandated deadline.

The decision by nearly 50 percent of bank customers to opt-out of overdraft protection is expected to affect ATM withdrawals because if a cardholder’s bank account is overdrawn, he won’t be able to withdraw funds from an ATM.

But Mike Lee, CEO of ATM Industry Association (ATMIA), said some cardholders may welcome the intervention.

The American Bankers Association (ABA) Tuesday released the results of a national telephone poll, which reported that 46 percent of bank customers did sign up for overdraft protection; the remaining five percent said they did not know if they did or didn’t.

The spilt between bank customers, who decided against overdraft protection and those who opted for it, reflects discipline among some consumers in post-recession era, Lee said.

"Many individuals got financially burned in the credit crisis and subsequent recession as a result of high levels of household debt," he said. "Perhaps the roughly even split between cardholders opting in for overdraft coverage and those opting out reflects a fairly widespread desire to stay within the limits of actual available funds, where possible. I therefore do not think cardholders will object when their bank account is overdrawn and the request to withdraw cash at the ATM is turned down. It’s all part of the new financial discipline we are seeing."?

Lee added that during the recession the ATM industry in general saw an increase in cash usage, but that could change. "The uncertainty about using overdraft coverage may lead over time to very minimal decreases in volume of cash withdrawn," he added.

New federal regulations that took effect Aug. 15 are buffeting the ATM industry. The government requires banks to get permission from customers before paying debit-card overdrafts and charging fees for the service. Prior to the new legislation, banks and credit unions did not need customer consent. Depending on who is asked between 17 percent and 25 percent of bank customers bounce at least one check yearly.

The Washington, D.C.-based American Bankers Association hired Ipsos-Reid, a market research firm, to survey 1,100 adults 18 years old and older to determine who sellected overdraft protection and who did not.

ATMmarketplace.com asked Carol Kaplan, an ABA spokesperson, if organization officials were disappointed with the results.

“We felt it could have been a lot worse,” Kaplan said. “Consumer groups ran real negative campaigns against overdraft protection.“

Kaplan did not name names, but the Center For Responsible Lending, a Durham, N.C.-based overdraft protection, vigorously campaigned against overdraft fee protection, a lucrative source of revenue for financial institutions.

“Banks and credit unions are trying everything they can to get your debit card hooked on expensive overdraft fees. When they ask to opt in to their expensive overdraft fees, just say NO!” the center said in a brochure with the headline, “This is Your Debit Card On Overdraft Fees.” The flier depicted flames in the shape of overdraft fees burning a debit card that had been placed in a skillet.

Kathleen Day, spokesperson for the Center for Responsible Lending, said in 2008, banks earned $24 billion in overdraft fees.

How much banks charge customers to pay each overdraft is a subject of debate.

Banks charge an average overdraft fee of $27, said Kaplan.

Day said banks “routinely charge” a flat fee of $34. She added that there are less-expensive alternatives to overdraft fees, such as lines of credit, which also would cover overdrafts.

9/1/10 - Frederick Lowe reprinted with permission from ATM Marketplace

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