On July 6, 2010, the Federal Reserve's Regulation E prohibition of overdraft fees will take effect.  From then on, financial institutions will no longer be able to charge a fee when a consumer overdraws a checking account by making a debit card purchase or requesting an ATM withdrawal for an amount that exceeds the consumer's available funds, unless the overdraft service is expressly authorized by the account holder.  The new "opt-in" rules are aimed at giving consumers a meaningful choice when it comes to the unwieldy fees associated with these services, which are assessed at around $35 per transaction by the big banks.

As a result of this rule change, retailers should be prepared for an upswing in declined debit card purchases (and consequently, an upswing in frustrated customers!).  Retailers may want to prepare their sales personnel for advising  a consumer whose purchase is declined that the consumer's bank will be sending the consumer a letter explaining the rule change and offering a way to opt back in to the overdraft service should the consumer so choose.

Over the long term, it is possible that banks will try to make up for this loss of overdraft fee revenue by increasing merchant costs and offering customer incentives to drive debit card use.  By offering consumers increased perks for using their debit cards, banks may be able to increase debit card traffic in retail venues, thus increasing the merchant fees they collect from retailers, to offset losses incurred by the new overdraft rules.  Merchants should also be prepared for the possibility of increased bank fees for debit card transactions in the near future.