Study: Banks lose billions because of 2010 overdraft policy

U.S. banks are losing billions in revenue because of the Federal Reserve's changes to the overdraft policy in 2010, University of Arkansas researchers say.

According to a release by the university, associate business professor Tim Yeager and student Kyle Mills studied the impact of changes to Regulation E, the Electronic Fund Transfer Act, on banks both nationally and in Arkansas.

The student-teacher team surveyed Arkansas banks and found that only 31.4 percent of consumers had chosen to opt-in for overdraft protection services. That result was comparable to nationwide study conducted by the Center for Responsible Lending, which gave a rate of 33 percent.

Yeager and Mills found that U.S. banks were losing between $3.8 and $5.3 billion in annual revenue from fees as a result of the low opt-in rate. The median Arkansas bank is losing between $154,000 and $168,000 annually, according to the study.

“Clearly, changes to Regulation E have adversely affected bank revenue nationwide,” Yeager said in the release. “It will be interesting to see how banks respond. Because the drop in revenue is quite sizable, I think many banks will take steps to reduce overhead expenses or raise fees elsewhere to offset the lower revenue.”

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