Reg E and Adding an ATM/Debit Card

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Question:

About Regulation E, 205.17(b)(3) Same Account Terms, Conditions, and Features: I thought about actually closing the card if the customer does not opt-in or closing the card if he had not opted-in, and have overdrawn the account for the second time. We won’t charge them those two times, but after the second one hits, we will shut the card off and will need them to opt-in. I feel that if we do not promote our debit cards with any account, but the customer has the option to add a debit card to a checking account, that we should be able to only give debit cards to customers that have opted-in. The regulation states that the “institution may not vary the terms, conditions, or features of an account provided to a consumer who does not affirmatively consent to the payment of ATM or one-time debit card transactions.” I do not think that the ATM or debit card is a term, condition, or feature of any of our accounts that we offer. It is a benefit that the customer may receive if he opens a checking account with us, but there is no obligation to any of our accounts that a ATM or debit card has to be acquired. It also states that we cannot offer consumers a PIN-only card if they do not opt-in. It is they just cannot get an ATM or debit card added to the account if they do not opt-in, do you think that this would be a violation or do you have any suggestions on how we could go about this?

Answer:

Before making such a sweeping decision, consider the consequences. Even if you can successfully argue that you can deny a card to a customer who has not opted in, does it make sense to adopt such a policy?

I think that many bankers, because they have to address exception reports and don't have their attention called to things that run smoothly, tend to overestimate costs and underestimate the value of customers and accounts that don't cause them problems. Consider that a "no opt-in, no card" policy assumes that any cardholder is going to not only use the card to overdraw the account, but also abuse his or her overdraft access to cause the bank to lose money. An FDIC survey revealed that most bank customers do not overdraw their accounts at all. Assuming that a cardholder will overdraw the account doesn't acknowledge that fact.

PIN-based card transactions are less expensive for your bank to process than paper (check) transactions. Signature-based POS transactions actually pay your bank interchange fees. Refusal to issue a debit card to a customer neglects those pricing realities.

Most customers who mess up and create an inadvertent overdraft cover their overdrafts within a few days. Those customers don't create losses for the bank.

If you have customers who mishandle their accounts and cards so that they are repeatedly overdrawn, I think you have a strong argument to cancel the card access of those customers (or close their accounts), but for account mismanagement, not for refusal to opt in. Set up a procedure that addresses the problem customer with repeated visits to the free overdraft trough, apply it evenhandedly, and you'll be in good shape. Don't assume the worst of customers who don't want to opt in.

First published on BankersOnline.com 6/28/10