By Chris Taylor
http://stream.publicbroadcasting.net/production/mp3/wkms/local-wkms-904704.mp3
Murray, KY – Campaigns are getting underway at many local banks to get customers to "opt in" to allow the institution to continue charging overdraft fees when an account goes into the red using an ATM Debit card. The federally mandated changes force banks to give customers the choice whether their account can overdraft or simply decline payment when there's insufficient funds. Chris Taylor talks to one man about his experience over-drafting at one area bank and profiles the pros and cons of opting in or out.
23-year-old Murray State student Jillali El Machatt works at the local Radio Shack. Within the last year, he claims he fell victim to confusing banking practices and excessive overdraft fees at Woodforest National Bank in Murray. He admits he's at fault for overspending his account by a small amount, but says the bank didn't offer much help.
El Machatt- I went there and I spoke with them a few times and they said we're not cover those fees. You're not going to get them refunded, not even one of them. And everyday that passes by and you don't have the money to cover those charges they're giving you. It gets worse. That's the trap.
El Machatt says he abandoned his account after weeks of exponential charges racked up to hundreds of dollars in fees.
El Machatt- It's not right. They charge you all that money, they know you can't pay it back and you have two options: you either go borrow money and cover it or wait for it to be charged off and go to collections. Your credit gets messed up. You get on check systems and you can't open up with any other bank. Just for them to make some money off of you instead of keeping you as a customer.
The Texas-based bank has seven branches in the Four Rivers Region: all located inside Wal-Mart super centers. Woodforest is notorious in the banking industry for its second chance checking service that seems to attract a customer-base that's not necessarily as fiscally responsible as that of other banks.
While El Machatt mismanaged his funds to prompt the overdraft fees, his complaints against Woodforest aren't completely unfounded. The Federal Office of Thrift Supervision recently investigated Woodforest and determined customers were paying excessive fees. Last month the bank agreed to pay almost a half-million dollars in fines and refund over $12 million dollars to customers nationwide who paid excessive fees for overdraft protection on their bank accounts. El Machatt, isn't eligible for the refund, but he claims to have had the overdraft protection feature and plans to further pursue the reimbursement. He continues to refuse to pay the over-drafted account. WKMS contacted Woodforest Bank, but the company declined to participate in an interview.
This overdraft experience is just one of hundreds in our region and millions across the country which has prompted Regulation E. The federal mandates force banks to let customers choose whether their debit cards can overdraft or not when their accounts lack sufficient funds. Many area banks are kick starting campaigns to let customers know about the change, which goes into full effect in mid-August. Most banks are sending informational packets via mail asking customers to opt in or out allowing their financial institution to foot the bill when they're short on funds. So, should you opt in? Well, banks may give you this scenario:
Flynn- I don't want our customers lined up at the grocery store with bags of groceries and then have their card denied.
Community Financial Services Bank President and CEO Betsy Flynn.
Flynn- We trust the vast majority of our customers to take care of their business and we don't want them being denied the cash or the products.
Or should you opt out? Overdraft fees, also known as NSF's, average from bank to bank at about $30 a pop and a series of small amount purchases can rack up quickly. For those who don't pad their accounts with extra funds or aren't diligently aware of their daily balance, it may be a good idea to opt out to avoid paying unnecessary charges. Many banks already offer overdraft protection programs on accounts, but those are oftentimes contingent on good credit rating. Most often with overdraft protection the bank will loan the cash to cover an overdraft, but if the customer takes more than a month to repay the loan, the interest could be as much as 22%. Flynn expects the new change to not really matter to a vast majority of her customers.
Flynn- 99% of them: this is immaterial to them. They would never create an overdraft in the first place.
Since the revenue CFSB generates on overdraft charges is a smaller portion of the bank's cash flow, Flynn doesn't think it will have much effect on its bottom line. But for banks like Woodforest, an employee who chooses to remain anonymous says almost all their branch's profit comes from many of its customers who get locked into an indebted cycle of deposits that come up short and repeatedly overdraft their accounts.
Murray Bank Chief Financial Officer Marla Geib says her bank won't be very much affected either, but can't know for sure exactly how it will impact future earnings.
Geib- I don't think we're going to be impacted like a lot of the other institutions. We tend to try to watch the customer and we don't assess a lot of charges based on NSFs from their debit card use anyhow.
Geib notes that Murray Bank's direct mail campaign and employee training to inform customers about Regulation E will factor into its next fiscal budget. She estimates a quarter of her customers will initially opt in.
Even though smaller community banks seem to be shrugging off overdraft fees' financial impact, larger institutions could be facing pandemic changes. According to a 2010 Bretton Woods study, overdraft charges have been the single-most profitable component of banks and credit unions for several years now. Kentucky households on average are charged about 9 times a year to what amounts to around $259 in fees and Kentucky institutions netted an estimated $386 million from the fines last year alone. Nationwide, that figure is over $38 billion.
As it seems Regulation E may take a chunk out of banks' revenue this next year, it does ensure people like Jilalli El Machatt get a choice. He says that's the way it should be anyway.
In the interest of full disclosure, we do need to mention that Community Financial Services Bank underwrites programming on WKMS.