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Back-On-Feet Bank Seeks Overdraft User for Fun, Fees, Maybe LTR

Adam Rust's picture

Posted July 29, 2010

Banks only have two more weeks to get their existing customers to opt-in for overdraft protection.

I couldn't believe it at first, but its true: banks are spending their time and money trying to understand the psychological makeup of the typical overdraft user.  One consultant says that it is all about helping the customer to make a "Good NSF Decision." I will let you guess how they define "good." The hunt is on. Now.

During the NSF-Hunt, a smart banker seeks first to understand. This is what the consultants are for, of course.  The rules don't prohibit overdrafts. They just make it a requirement that a consumer gives his or her consent for an overdraft service first.

Still, there's not a lot of time. If in two weeks, the banks have not found a way to get a consumer to opt-in, then that fee stream will be gone.

It is all about the right "relationship."You've heard that term. It is often the come on for a heavy package of wealth management services, or for private banking.

"The relationship banker is the person who is going to fulfill his or her professional mission by putting himself or herself at the disposal of a decision maker. You're not building your career on their back, they're building their industrial purpose on your back." (Fortune Magazine)

That's nice. But there are so many people out there, and so little time before August 15th. Moreover, the consumer that knowingly opts-in for overdraft is not typical.

She wanted a relationship with her bank. They said, "opt-in for overdraft." She said, "if that will make you happy."                                                      Now she wishes it had been different.

They're looking for a different type of person. They are seeking to find the co-dependent customer, ideally for a long-term relationship.

To help those bankers with on their NSF hunting, they are seeking help.

The Wall Street Journal has a feature on one of those consultants - David Peterson. Peterson wants the bankers to understand things.

What does a person feel when they get an overdraft? According to Peterson, it is a

process. There are five stages:

  • shock and denial
  • pain and guilt
  • anger and bargaining
  • depression
  • acceptance

You can't make this kind of stuff up.  Actually, Peterson didn't really make it up, he just stole it from Kubler-Ross.  But the bankers paid him anyway.

Don't pretend that Peterson is struggling for business. His March presentation was attended by more than two hundred bankers. Peterson's firm is i7strategies.  One of his presentations, entitled "The Art of the Opt-in: Helping Consumers Make Good NSF Choice" is available through this portal.

It is not clear if David Peterson will be speaking at any of the financial literacy seminars that those banks are going to offer to local customers within their branch footprint.

The banks are taking the advice and pitching overdraft.

TD North says "Simply Say Yes." At Chase, you are prompted at the ATM if you have  made a decision on your debit card overdraft coverage. Branch staff are also ready to help you make the right decision.

In fairness to banks, though, it is worth recognizing that they aren't the only ones. Truliant Federal Credit Union, for instance, tells its customers that "We're looking out for you! Sign up for overdraft!"

We know what happens after the NSF Hunt identifies a suitable "relationship." The hunter will enable them. The industry is motivated to identify appropriate opt-in candidates. As I emphasized earlier, the clock is ticking. That said, it can be expensive to reach out to them. Direct-mail programs can charge as much as $1 per letter to send petitions in the mail.

The hunt is a success if it can bag the right fruit. Overdraft revenue only takes a few people. The FDIC says that 14 percent of deposits account for 93 percent of overdraft fees. Those mistakes net the banks a lot of money. In 2009, banks collected a whopping $24 billion in overdraft fees.

The truth is that the banks won't see much of a loss on their income statements from the new rules, provided that they can successfully shepherd their chronic over-drafters through the new opt-in process.

The hard thing for any person, in this situation, is to leave the abusive situation. But, you don't need a consultant to do the right thing. Just say 'no' to that toaster. Ignore those free lollipops. Let them keep their magnetic refrigerator magnet. Most important - and I can't underestimate what an important step this is - don't opt-in. Just say no.  You will feel better. Someday, once it has come to its senses, even your bank may feel better.

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