The income generated by overdraft fees has been curtailed with the passage of the Wall Street Reform and Consumer Protection Act.
These laws protect consumers from skyrocketing and unreasonable fees such as a $35.00 overdraft charge for a cup of coffee.
Some banks are giving consumers a choice to “opt-in” to overdraft fees. The banks are now simply denying transactions that would overdraft your account instead of approving it and assessing a fee.
A 2008 survey done by the Center for Responsible Lending found that “80% of consumers would rather have their transactions denied than be approved in exchange for $34.00 fee.”
The loss of revenue from these fees is enormous for the banks. According to the Center for Responsible Lending (CRL), “…banks and credit unions collected nearly $24 billion in overdraft fees in 2008.
Robert Hammer, CEO of RK Hammer, a bank advisory firm said, “…The bottom line for banks is shifting enormously, swiftly and deeply, and they’re not going to sit by twiddling their thumbs…They’re going to change.”
In November, Bank of America began to assess fees to their formerly free checking accounts and new accounts. If a consumer wants the type of checking account that allows access to in-branch banking and receive a monthly statement in the mail, a monthly fee of $8.95 will be charged.
Bank of America customers can avoid the monthly maintenance fee by maintaining a high balance, using direct deposit or swiping their debit card several times a month. Customers can also open an “eBanking” account, a free checking account, managed online where they make deposits and withdrawals through the ATM. However, if the customer goes into the branch, they will be assessed a fee.
Bank of America also started offering “emergency cash” to customers who use the ATM for withdrawals and exceed their balance for a $35 fee. Customers must “opt-in” and accept the $35 charge to obtain the emergency cash.
More banks will follow by making the terms of free checking almost unattainable for some consumers. For instance, Wells Fargo no longer offers free checking for new accounts except under a few conditions. Customers with direct deposit or a Wells Fargo mortgage will be allowed to have free checking. The banks are being creative in trying to recoup the lost revenue due to the Reform Acts. The end of free checking is just one way.
The banking industry is becoming kind of an ala carte menu. Brian Riley, a research director for Bank Cards at TowerGroup said “We are now in an era where consumers will be buying products from banks, even if it’s a checking account.” He noted that several banks have started charging $7.50 for paper statements.
Free checking remains available for many banks and credit unions, but buyer beware. A spokeswoman for Bank of America, Anne Pace, said “Customers never had free checking accounts…They always paid for it in other ways, sometimes with penalty fees.” Take the time to comparison shop as free may not really be free.