A former Fed economist turned academic has estimated the banking industry’s lost revenue due to Reg E at between $3.8 to $5.3 billion annually.

Recall that the Electronic Funds Transfer Act required that banks provide a mechanism by which customers could opt in to overdraft services, which previously had been automatic. The rule became effective July 1, 2010. If customers did not opt in, banks were required to remove the fee-based, overdraft service from the account.

To be sure, the industry fought the rule tooth and nail, as $5.3 billion in annual revenue in nothing to sneeze at. But the reality is that the effects of the law may not have been as bad as initially expected. At the time the law was passed, it was unclear how many consumers would actually opt-in. Given the anger over shoddy consumer practices, the conventional wisdom was that few would choose to opt in to anything that might result in big fees for small account lapses.

In this view, the fact that about one-third of all consumers have opted in seems more than expected, meaning that the losses stand to be lower than expected. That said, the lost revenue is still significant, especially in light of other card legislation. Most notable is the Durbin Amendment, which stands to have a much greater effect and result in revenue losses that will dwarf the Reg E losses. All this highlights the challenges banks face in raising revenues via fees. They will have to get creative.

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