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How Overdraft-Fee Crackdown Could Backfire

If Washington’s new financial watchdog cracks down on overdraft fees, experts say banks may end up raising charges for all customers — including those who don’t bounce checks.

The Consumer Financial Protection Bureau said Wednesday it plans to collect data from the country’s largest banks to see how their overdraft policies impact consumers. Those fees, which can run as high as $35, come into play when bank customers spend more than they have in their accounts.

As onerous as overdraft fees can be, experts say that whenever banks are forced to scale back one charge, they find a new one to replace it. “It’s like that fairground game of whack-the-mole,” says Curtis Arnold, founder of “You kill one mole or fee in this case and another appears in its place.” (The Consumer Financial Protection Bureau did not respond to requests for comment.)

Richard Riese, senior vice-president of regulatory compliance at the American Bankers Association, says he welcomes the bureau’s plan and hopes the study withstands peer review. “But it they’re only going to use data from large banks and yet this is a rule that will apply to all the banks in the country,” he says. Riese says customers always know upfront what the cost will be of overdraft services “and know they can stop the service anytime they want.”

Should overdraft fees be reduced, other areas ripe for new charges include monthly service fees for checking accounts, fees per check written or per debit card transaction, says Ben Woolsey, director of marketing and consumer research at Banks already raised fees on ATMs, increased credit card interest rates, and slashed debit reward programs, experts say. Banks charge an average of $1.10 versus $0.85 in mid-2011 for using out-of-network ATMs, according to a survey released this week by Plus, banks charged non-customers an average of $2.37 for using their ATMs.

What’s more, between 2008 and 2011, the average rates in credit card offers rose by 2.1 percentage points, according to a survey released this week by Based on an estimate of $800 billion in U.S. credit card debt, the survey says that equates to another $33 billion in fees.

That said, there has been some good news for bank customers in recent months. The average balance required to avoid a monthly maintenance fee has lowered to $3,591, down from $4,123 in mid-2011, according to However, says banks are doing away with free checking: it says 45% of non-interest bearing checking accounts are free, down from 76% in 2009.


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    • This is already happening. My bank is now imposing a $10 monthly fee for low balance, no-interest checking accounts (traditionally its bread and butter offering used to make money off of financially inept individuals that get tripped up into fees.)

      As a responsible person that just wants a no-fee, local checking account to keep just enough money for the monthly bills, while investing savings at institutions that offer better returns, the good times are over. It used to be that you could get a free ride off of the irresponsibility of other bank customers, but once again the person that is responsible and takes the time to understand their options comes out on the worse end of government actions.

    • Outlaw one fee and banks will come up with another to replace it? Sounds like a reasonable theory. The difference is that a per-check or per-card-swipe card would be disclosed and transparent, whereas banks did everything possible to manipulate customers’ accounts to trigger overdrafts and did so with deceptively malicious intent. That’s why you see banks like BofA forking over $410 million in overdraft lawsuits, but you’ve never see a “minimum balance” lawsuit.

      Don’t confuse regulating overdrafts with regulating banks’ income. Yes, they are entitled to make money, just not surreptitiously.

    • This govt has the banks in a stranglehold. The govt’s goal is not better products for consumers, it is to squeeze all the operating profit out of the banks. That sets up the path to bank nationalization. Given how weak BAC and C are, it may happen sooner than you might think…

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