ING Banks on Luring Consumers Fed Up With Big Overdraft Fees

Sees Regulation as Opportunity, While Industry Clings to $38.5B in Income

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YORK, Pa. ( -- ING Direct has positioned itself as the Southwest Airlines of the banking industry. It's got low fees, dynamic employees who tweet often, thousands of devoted fans on Facebook and cool places to hang out. And it's zigging in another area where other banks are now zagging: overdraft coverage

Opportunities for the marketing and media industries in an otherwise bleak year
And it's zigging in another area where other banks are now zagging: overdraft coverage.

With the Credit Card Accountability Responsibility and Disclosure Act going into effect this year, financial institutions are scrambling to figure out how to hold on to income from overdrafts that totaled $38.5 billion last year. Among the act's consumer-friendly provisions is one that requires customers to opt-in for overdraft coverage (and the resulting fees.) It also disallows interest-rate increases on fixed-rate accounts until an account is 60 days past due.

ING, however, sees the transition and customer confusion as an opportunity to market its terms. "We think that with the new regulations and things like banks pressuring customers to opt-in for overdraft coverage, that the market is really coming to us," said Todd Sandler, ING Direct head of product strategy. "We've seen a real shift, even in just in the past 45 to 60 days ... our business is up 70% to 80%."

Instead of a fee, ING's overdraft charge for its Electric Orange accounts is an "overdraft line of credit" system that allows customers to write checks or use a debit card for more than their balance (up to a preset amount usually no greater than $500) and pay back the overage with interest, which is the ING Direct prime rate plus 4% (currently 7.25%). While ING customers do pay for overdrafts, it's not a flat fee, but interest paid on the amount "borrowed." For example, on $100 at the current 7.25% rate, a customer would pay about 60 cents for one month.

Some of ING's new business is likely coming from people like this one online: @caitlin_thomps wrote on Twitter last week, "I just quit you @Citi/@INGDIRECT doesn't charge me arbitrary checking-account fees. Thanks for rewarding my 10 years of business with suck."

Standing out
Mr. Sandler said while ING will stay consistent in its marketing messaging, it will also make sure to push its advantages and "raise our voices a bit and be more vocal now in both social media and some of our advertising."

Meanwhile, some of the big banks such as Chase have been sending direct-mail notices to its customers encouraging them to opt-in -- the opt-in requirement goes into effect this summer -- for overdraft protection on debit cards. A recent letter to customers from Chase noted that its debit-card overdraft coverage will soon no longer be offered automatically, "so you need to tell us if you want to keep it" in underlined text.

It's worth noting that more than 44% of banks and credit unions have overdraft-fee income that is greater than net income, according to July figures from Moebs Services, which collects data for government agencies including the Federal Reserve and Government Accountability Office.

Michael Moebs, economist and CEO of Moebs Services, said banks should stop looking at overdraft fees as a penalty and instead turn it into them a benefit for customers. He suggested dropping the fees to under $20 and making up the difference in volume. The average overdraft fee charged is $35 by Wall Street banks, $27 by community banks and $25 by credit unions, he said. About 10% of the 130 million checking accounts in the U.S. are responsible for the majority of overdraft fees, he said.

A fee cut can work, Mr. Moebs said. He worked with a large regional bank in the South to help it drop its overdraft fee in September to $12 from $24. By the end of the year, the bank found it had increased overdraft revenue 16%. "We're in an era of transactions in transition, moving from the high-cost, paper-driven transactions to the electronic ones, which are cheaper. [Banks] need to tell consumers transparently and capitalize on efficiencies with lower prices," he said.

Fees hated
Greg McBride, analyst with, said fees are certainly nothing new for banks and, in fact, fees -- not just penalty fees but others including asset-management and mortgage-origination fees -- are important in helping banks maintain an even bottom line when interest rates vary wildly during volatile economic times.

Part of the problem is that no one likes fees. A Consumer Reports survey last September found that hidden fees was the No. 1 everyday annoyance out of 21 possibilities, which also included tailgating, cellphone use by other drivers, incomprehensible bills, waiting for repair people and spam.

In a survey it conducted last November, ING found that 26% of Americans are angry about ATM fees -- just a few percentage points more than the 24% who are angered by overdraft fees. Interestingly, only 33% blamed themselves for the fees, while 67% said it was the banks "nickel and diming" them.

But it's those same customers now in charge. "It's clear we're in a transition period," said Peter Garuccio, senior director-public relations at the American Bankers Association. "Customer choice and customer control will drive what we see in the marketplace going forward."

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