TCF May Revamp Its Overdraft Fee Policy

TCF is testing a new overdraft policy in Michigan, and CEO Bill Cooper said that the company may roll out the program-which ditches multiple fees in favor of a single daily charge-nationally by the end of 2011.

Wayzata-based TCF Financial Corporation may soon revamp its overdraft fee structure to begin charging a single fee at the end of the day if a customer has a negative account balance-rather than charging fees every time customers overdraw from their accounts.

During a Thursday conference call with analysts, Chairman and CEO Bill Cooper said that the bank is experimenting with its policies surrounding non-sufficient funds (NSF) fees.

“We've introduced a new product, which we're currently piloting in Michigan that is not item-based fees but negative balance-based fees,” he told analysts, adding that “customers seem to like it” and the company hopes to expand it to the rest of its banks by the end of 2011.

Spokesman Jason Korstange said in a Monday phone interview that the company launched the pilot program in January. Under the program, customers with a negative balance at the end of the day are charged a fee of between $10 and $25, depending on the amount that was overdrawn. He said that the company will tweak the model based on the pilot program's results, and the fees may change.

The bank's current policy charges customers $35 every time they overdraw their account. Cooper claims that the new overdraft structure will help customers avoid “trainwrecks” in which they end up with multiple overdraft charges in a single day.

Under the pilot program, when a customer is charged a daily fee for having a negative balance, they can be charged for each consecutive day that the account remains negative. Korstange said that the bank plans to send customers e-mails and text messages when they're charged a fee to encourage them to put sufficient funds in the account and avoid another fee.

When asked by an analyst specifically what the bank has learned in its pilot program, Cooper declined to provide additional details, stating that others, presumably competitors, should have to take the expensive steps themselves to forge new programs. “I'm not going to give it to them for free,” he said.

He did say that the pilot program has shown evidence that the new overdraft fee model could result in a lower attrition rate. “We believe it's a more customer-friendly and a more regulatory-friendly product structure,” Cooper said.

Korstange said that because there are currently only a couple of months of data from the pilot program, the long-term effects aren't yet certain.

The Federal Reserve altered overdraft rules last year, determining that banks can continue to charge the fees, but only when customers opt in for overdraft protection.

TCF is leading the fight against another regulatory change that places limits on fees that banks can collect for debit-card transactions. The company sued the Federal Reserve in October, alleging that the provisions are unconstitutional. Earlier this month, a federal judge opted not to throw out the suit as requested by the Federal Reserve-but he also denied TCF's request for a preliminary injunction to stop the limits from being enforced.

With approximately $18.5 billion in total assets, TCF Financial Corporation-which operates subsidiary TCF National Bank and has 442 branches-is Minnesota's second-largest bank holding company.