Consumers and citizens all over the United States let out a joyful uproar when it was announced recently that new banking regulations would lead to the death of overdraft fees on bank accounts. However, that unanimous cheering quickly subsided as the reality of the new regulations has started to sink in and hit the financial home front.
So what is the main downside to the new overdraft rules?
The entire banking industry within the U.S. is now facing a crippling drop off in revenue that could climb as high as 40 billion dollars. That is the kind of drop off that the banks are going to struggle to cover, and it is fairly likely that the only way they are going to manage to pull off that phenomenal feat is to start passing down those charges onto people like us.
Years of consumer complaints, stories of the $40 cup of coffee, and the fact that overdraft fees were bringing in an outrageous amount of revenue for banks forced these new regulations into place. But in the long run, these changes in regulations may not necessarily be as good as they first appear. According to a consulting firm located in Chicago, overdraft fees provided a remarkable $38.5 billion dollars for banks in the year 2009, and those same banks now may be forced to charge more for other everyday banking services to recover that direct revenue loss.
What are the New Rules?
Effective August 15th for regular accounts and June 1st for brand new accounts, the new federal rules demand that banks must convince customers to agree to overdraft protection programs before they can charge them any additional fees. If a customer does not want to be a part of the program, then their transactions will simply be declined if they do not have enough money in their account to cover them.
Different banks are working their way around these new regulations in different ways. For instance, JPMorgan Chase has already sent out letters informing their customers that they must opt into their overdraft program if they want protection. On the side of the spectrum, Bank of America has decided to do away with their overdraft protection program altogether.
The problem lies in the fact that these banks have become dependent on overdraft fees as a way to bring in enough revenue to keep their heads above water. With many banks still treading shark-infested waters thanks to the overall recent global financial crisis, this is a time where some of them simply cannot afford to let go of such a substantial amount of revenue. Sure, many consumers will still opt to have overdraft protection meaning that not all of the $39 billion will be lost, but regardless many experts claim that there will still be a percentage of revenue loss of between 30% and 40%.
No organization can absorb that kind of direct hit to their bottom line without some repercussions. And that kind of loss of revenue has to be made up somewhere and that somewhere may very likely be your wallet and your bank account.
There are some rumblings that a few of the major banks are toying with the idea of charging consumers monthly checking account fees if they do not meet their requirements of maintaining a minimum balance. And although these monthly checking account fees are not anything new, many of them had been illuminated over the years through such creative measures of offering supposedly ‘free’ checking accounts, which were funded through hidden fees, such as an overdraft.
One example of charges that consumers will be facing can be found with one look inside the Citigroup EZ Checking Account. The bank itself had never charged fees on debit transactions but is now charging $7.50 a month for any account that falls below a daily balance of $1,500.
Essentially, the majority of Americans are going to start seeing higher banking fees each month, while only a small percentage of the population who adhere to new requirements may still notice some small savings. This is because only about 8 to 14 percent of Americans regularly faced overdraft fees. Instead of rewarding consumers for keeping their balance in the plus, the new regulations have essentially just saved money for the consumers who could not keep track of their accounts or keep their balances above $0.
Yes, the fees will be smaller overall, but more Americans will still be adversely affected. It appears that we are going to be heading to a banking world where we will face a whole new brand of “nuisance” fees. This means we may be charged a small amount to visit a teller; we could be charged to print out a statement, or to have a bank issue a new customer check.
In a cruel twist of fate, the low to middle-income families that these new overdraft regulations were supposed to help may be hit the hardest. The creation and addition of everyday and regular fees could cause many Americans to close down their accounts and be left with no access to savings or checking accounts.