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Balancing Bank Regulations and Reforms

There are two kinds of banking customers, says Elizabeth Harris, VP branch manager at National Bank of Arizona. “Those who just want to go online and know what their balance is, and those who want a real relationship with their banker.”

Harris prefers the latter. From her office on Leroux Street in Flagstaff, she contemplates upcoming legislative bank reforms and new regulations slated to take effect in July and August.

“It’s important to me as a banker that customers should really be involved in their banking,” she said.

In the short term, that means deciding how you want your bank to handle over- drafts for debit cards. Regulation E pertains to ATM withdrawals or Point of Service (POS) transactions. Pre-authorized debits and check transactions are not included. Intended primarily for retail consumers, Regulation E also affects sole-proprietor business owners, many of whom, according to Harris, “live on their debit cards.”

In the past, automatic authorizations up to $200, regardless of bank balance, were typical. Often considered a courtesy, the practice came at a hefty cost. A three dollar overdraft could mean $30 – or more – in penalties on your account.

“Let’s say you were in Tlaquepaque, attempting to buy $40 earrings with your debit card, but you only have $38.00 in your account,” explained Ilene Angarola, executive VP of New York Community Bank – new owners of Northern Arizona’s Desert Hills Bank. “The cashier would have put through the transaction and you’d go home with the earrings.” But, you would incur penalties. With new regulations, your payment will not be accepted. You will save on overdraft charges, but go home empty-handed. Unless bank customers specifically “opt in,” the days of courtesy overdrafts are over, beginning on August 15 for existing customers and on July 1 for new account holders.

Customers can still choose to have over- drafts covered, but will need to sign up for this option. It won’t happen automacally. Harris suggests sitting down with your banker. She understands that in hard times, some people bank on debit transactions going through even if they don’t have an adequate balance. In such cases, she weighs customer needs against what is good for the bank.

“I listen to their stories. A machine doesn’t make the decision for us.”

Regulatory changes “are intended to strengthen the financial institutions in the U.S.” said Andy Phillips, market president- Northern Arizona for Sunwest Bank. They are “happening almost on a daily basis.” Other important regulations eliminate deceptive practices for retail consumers, like hiking credit card fees after initial sweetheart rates. Credit card bills will now state the amount of time needed to pay off a balance at the minimum payment rate, and the monthly amount required to zero out a balance within three years. Gift card dormancy fees and expiration dates are eliminated, and there are more protections for young people signing up for their first credit cards.

In addition to new regulations pending Senate Bill 3217, the Restoring American Financial Stability Act of 2010 is intended to provide a wide range of reforms. “Every time a bank fails,” said Phillips, “it negatively affects stockholders, consumers, communities and employees.” Whether these changes will be effective “remains to be seen.”

One concern is how interchange fees for debit cards will be assessed. Currently, “the merchant pays a fee to the customer’s bank each time the customer uses his or her debit card,” Angarola explained. “Whether or not that cost is passed onto the customer is truly speculative – it really depends on the final legislation, which is currently under debate.

If the final legislation provides that interchange fees be paid by an entity other than the merchant,” she added, “it will benefit those customers who are business owners.” They will no longer be responsible for paying fees on customer transactions.

But, when expenses go up, increased costs may be passed on to the consumer. “Financial institutions are not unlike other businesses,” said Phillips. “It is likely that the day of free checking accounts will soon be over.”

The bottom line for both regulations and reforms means that consumers need to stay informed. Harris recommends developing a good relationship with your bank. “Sit down with a banker,” she says. “I don’t want to be an 800 number.” FBN

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