Monday, July 6, 2009

Really Crappy News: New regulation may mean end to free checking

So... they'll give 0.8% APY on savings and less, while charging us to hold our money. Just peachy.

CNN Money: Is free checking on its way out?
Bank customers used to the perks of free checking accounts — unlimited check writing, online banking, debit card use and ATM access, to name a few — might have to recalibrate their expectations soon. That’s because overdraft fees, which banks use to subsidize the expense of free checking accounts, have been under fire by consumer advocacy groups. (A quick primer: You spend $8 on lunch at Burger King and pay with your debit card. But there’s only $5 in your checking account. The transaction is still approved, but the bank slaps you with a hefty overdraft fee for the privilege.)

There have already been some changes to the way banks must disclose overdraft fees on statements, but now there’s a bigger push to require institutions to obtain accountholders’ permission before charging them overdraft fees on debit card purchases and ATM withdrawals. President Obama’s proposed Consumer Financial Protection Agency would likely address overdraft fees in some way.

That spells trouble for banks already hurting from the financial crisis. The bulk of revenue in bank retail deposits comes from penalty fees; economic research firm Moebs Services estimates that banks will rake in a total of $38.5 billion in overdraft revenue this year. In fact, a 2008 FDIC study concludes that 74% of all service charges on deposit accounts come from overdraft and insufficient fund fees, which typically range between $35 to $40 per incident. But there’s a small amount of consumers who shoulder most of the fee load: According to a May report from consulting firm Oliver Wyman, 68% of those fees come from just 5% of banking customers (who pay, on average, $1,614 each year). Meanwhile, 74% of customers pay no overdraft fees at all.

But with banks expecting roadblacks to fee income, some experts predict that the free-checking model might be on its way out. Aaron Fine, author of the Oliver Wyman report, recently told banking industry trade publication American Banker, “The industry has to change pretty dramatically because a substantial amount of the revenue that paid for free checking is likely to go away. That business model is not sustainable.”

More from around the web:
WSJ: Is This The Beginning of the End of Free Checking? The End of Free Checking?


Well, I hope it's just scare tactics ment to prevent the upcoming regulation - aimed at us by banks in order to stir some uproar.

There's no fun to being mugged monthly by your bank. Currently I have a TCF free checking account. I hope it doesn't change.


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