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As Overdraft Fees Drop, Free Checking May End
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The $38 billion in overdraft-protection fees that make up one of the banking industry's fattest cash cows will take a significant hit this summer when federal rules kick in that preclude the practice without prior consumer approval.
That means financial institutions – battle weary from last year's economic crisis and new credit-card rules that slashed their ability to make money - are looking for new ways to make up the shortfall. And consumers ultimately will be the ones to take the hit: industry watchdogs say." Clearly it's a significant amount of money to be lost and there will be an effort to recoup it from somewhere and it's to be the customer who pays it up," said John Ulzheimer, president of consumer education at Credit.com, which tracks the banking industry.
One of the first areas to get dinged, Ulzheimer said, will be the long-popular free-checking plan, a 1990's concept that proved so popular it morphed from an industry commodity to a given
The need to recoup lost fees comes from a Federal Reserve Board move in November 2009 to prohibit banks from levying overdraft fees on ATM and debit-card transactions without first getting permission from the customer. Those rules kick in July 1.
Overdraft fees at banks can be as high as $40 per transaction - an enormous amount when the triggering amount was for a few dollars.
The new rules will certainly change checking products, said Ben Woolsey director of marketing and consumer research at Credit-Cards.com. "If they can't get customers to opt-in for the coverage, they will have to institute fees on the accounts since they're simply not as profitable as before."
Banks are already trying to get consumers to keep the overdraft coverage's. Chase has mailed a letter warning its customers that their "debit card may not work the same way anymore" without it. Bank of America took it a step further recently: no overdraft capability at all unless the account is linked to another account with funds, officials said.
The Franklin Prosperity Report, April 2010, Vol. 2, No. 4, Page1
©2010, Kelly Ruggles Web site
Kelly C. Ruggles is a fee-based financial planner located in Spokane.
Kelly C. Ruggles, President of American Reliance Group, Inc., a registered investment advisor.
Kelly Ruggles is the author of "The Financial Playbook" for Retirement
Kelly C. Ruggles does not intend to provide personalized investment advice through this publication and does not represent the strategies or services discussed are suitable for any investor. Investors should consult with their financial advisors prior to making any investment decisions
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