Bye-bye free checking. Hello fee checking.
Free checking is disappearing as banks scramble to make up lost revenue. Will the government's new finance watchdog step in and regulate bank's new checking fees?
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In the current hostile climate, banks are beginning to get sneakier about raising fees. So, instead of levying a flat $5 debit-card charge, Bank of America is targeting its checking account users.
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Tim Chen is founder and CEO of NerdWallet, a website that helps users find the best rewards credit cards.
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Since almost 9 in 10 Americans have a checking account, according to the CFPB, charging for checking could be a profitable move for banks. Mr. Moebs said that Bank of America’s new fee system would affect a broader swath of its consumer base than the debit-card charges.
Checking account fees will not only hit more consumers, but will “particularly impact the most vulnerable, who have the least capacity to meet minimum balances and avoid the fees,” Norma Garcia, senior attorney at Consumers Union, told the Huffington Post. In a press release, she urged Bank of America to drop its latest fee scheme, or “risk losing even more consumers who are tired of being nickeled and dimed at every turn.”
As much as we hated the idea of the $5 debit-card charge, at least Bank of America was up-front about the flat fee. It’s still being tested, but this new system for checking-account charges seems much more complicated, requiring customers to maintain certain minimum balance, use a credit card, or take a mortgage to dodge the fees. Plus, as some consumer advocates believe, it seems targeted to hit those who need free checking accounts the most.
Banking fees should not be “punitive,” meant to trap customers in problems, Kathleen Day, spokesman for the Center for Responsible Lending, told Bloomberg/Businessweek. She cited high-interest payday loans and overdraft charges as examples of these punitive fees that “pound customers into the ground.” However, Ms. Day said she also sympathizes with Bank of America, which does not offer either payday loans or overdraft fees and had to give up its $5 debit-card fee. “You could argue that it is a more transparent pricing mechanism,” she said.
The checking account fee system in the works may be less transparent than a flat debit-card charge, but this is where the CFPB can step in. Already, the CFPB has announced its plans to examine how banks charge overdraft fees to customers who bounce checks or withdraw more than they have in their accounts using debit cards or ATMs.
“Overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it,” said CFPB Director Richard Cordray. “We want to learn how consumers are affected, and how well they are able to anticipate and avoid paying penalty fees.”
Now, with these new checking account charges under development, and the CFPB’s recent announcement to take on complaints about bank accounts, it seems that it is taking its job as a watchdog seriously – although it’s too soon to judge its bite.
It’s certainly getting an earful, anyway. As of Feb. 22, the Bureau says that it has received more than 20,000 complaints, including nearly 7,000 on mortgages and almost 12,000 on credit cards.
– Tim Chen is the CEO and chief credit card analyst at NerdWallet.com, a site that educates consumers about credit cards.
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