Turning Reg E Lemons into Lemonade


Here we go again.  The banking regulation trade winds have changed course on us and we are faced with the situation of losing fee income from electronic overdraft transactions.  For some banks this is no big deal as they did not participate in this type of fee income prior to Reg E.  For others, it is a scramble to figure out how to replace the lost fee income.  Here are the top 5 things you should be doing to make the best of a bad regulation.

When you look at Reg E, you can see lemons all around.  From the bank’s perspective, the loss of fee income can be significant.  Simply shutting off the fee income faucet from this revenue channel is concerning to many bank executives.  From the customer point of view, they are going to be fuming mad.  The first time they hit a snag when going through the grocery store with 5 people behind them in line they will not be happy.  Will they blame the government regulators?  Heck no, they will be steaming mad at your bank.   So now you not only will lose the fee income but you may look at customer losses as well.  Blaming the government regulations will not cut it when trying to explain this away.  Customers will remember the embarrassing feeling in the grocery line and look to change banking relationships to your competitor. 

For most banks, the action plan has been to quickly get customers with high overdraft potential to sign up or opt-in so that you can still continue with business as usual.   With this effort you probably have mailed nice letters and maybe made calls as well to this customer segment.  As expected, the response rate on the mailings is extremely low.  The reason for this is customers receive opt-in letters all the time.  They have become complacent with tossing them in the trash can without consideration.  Face it, opt-in letters all look the same.   They contain boring legal mumbo jumbo that just does not look interesting.   So, you are left with making calls or trying to follow-up in the branch. 

The question I have is what is your plan after the “go live” date?  After your initial effort to get people to opt-in, do you just forget about this or does Reg E now become a part of your everyday campaign to get more people to opt-in?  What about the people that initially said “no” and did not opt-in?  Do you still try to go back to them again in 6 months or a year to see if they want to change their mind?   My concern is many banks are only looking at the short term opt-in situation and forgetting to focus on a longer term plan to maintain the opt-in indicators after the go live date.

Alright, at this point I think we all agree that Reg E is sour.  So how can we make lemonade out of this seemingly bad regulation?  Here are 5 things you need to do.


Contact your customers – Banking is a relationship business. You build relationships by talking directly with your customers not by sending a letter. Most people do not like financial surprises in their life. Call them and explain the Reg E situation in terms they can understand by giving an example of what might happen in the grocery store should they overdraft their account. Stop using lots of legal mumbo jumbo to explain the situation. Use real life examples.

Cross-sell Opportunity – Each customer call or touch is an opportunity to enhance and expand a banking relationship. Don’t just call to “notify” them of the situation. Instead, use this opportunity to have a discussion about their relationship with your bank. Remember you are looking for life events that have a financial need. Do they have a child getting ready to go to college? Are they looking to move into a new house? Each customer contact should not be wasted on just a notification but instead we need to use the contact to better understand each individual customer’s needs.

Educate your customer on the new regulation. Face it, customers are not bankers. They do not understand banking regulations nor do they want to. However they will be negatively affected by the outcome and trust me they will be using colorful words when describing your bank when they get into this overdraft situation for the first time. Additionally, they will not keep this dissatisfaction to themselves but they will be telling all their friends about how much they dislike your bank. So, you need to get the word out to your customers at all channels. Put notifications in the branch, ATM, web banking as well as via direct mail.

For banks not participating in Reg E, are you using this as an opportunity to call your customers? Why not? Call them and tell them that you are not participating in this Reg. As this regulation will be discussed in the local news media, don’t let this opportunity pass you by. This is a great reason to call your customer and have a discussion. 

Evaluate new technology to help your tellers manage Reg E. New technology exists to extend your existing core banking system. The Quest Teller Referral Assistant® software which was created specifically for banks running Fiserv, FIS, Metavante, Jack Henry and OSI helps tellers view and update the Reg E indicators directly from their teller workstation without leaving your existing teller application. Additionally, it includes automatic trigger monitoring so every six months the software will prompt the teller to ask about Reg E during the customer transaction session. Using this new technology, Reg E opt-ins can become manageable without impacting existing teller workflow.

So there you have it. Turn a negative into a positive. Turn lemons to lemonade. It takes a bit more effort but always remember how valuable each and every customer is to your organization. For more information on Reg E and Teller Referral Assistant®, see the Quest Analytics product fact sheet.