PhilMur's thoughts on biz/tech/money/life

Great news reported by the NY Times today in an article about Bank of America and Chase Bank’s intention to change their debit card fee structure.

As I mentioned in a recent blog post of mine, Beware of the Hidden Costs of Banking, many consumers have suffered hundreds of dollars of overdraft fees coming from a few very small-dollar transactions after an unfortunate timing incident regarding a deposit.

The article today reports, among other things, that two of the largest banks will be taking the following steps very soon:

Bank of America:

• Will soon allow customers to “turn off” the ability to spend beyond their bank balance
• Beginning next summer will limit the number of times a customer can exceed their balance using a debit card at a store in a given year
• Will cap the number of daily overdraft charges at 4 per day
• Will stop charging any fees for customers who overdraw their accounts by less than $10 in a single day

Chase:

• Will stop processing all of a day’s debit card transactions from largest to smallest, thereby increasing the number of transactions subject to their overdraft fee, and will instead process them chronologically
• Will allow customers to “disable” overdraft coverage on their accounts, thereby stopping them from using beyond the balance in their accounts, which now results in huge fees piling up
• Will cap the number of daily overdraft charges at 3 per day
• It will stop charging fees when accounts are overdrawn by less than $5

Pressure from regulators and legislators has been building for a while now for banks to improve their debit-card fee policies to be more consumer-friendly, and Bank of America and Chase Bank’s announcements are likely designed to head off, or at least reduce, the current and future bad press they are getting on this issue.

Nonetheless, this is a big win for the consumer.

And other banks will undoubtedly begin to follow suit, even if it is a source of literally tens of billions of dollars for the banks right now.  Increased customer frustration and negative press will take a toll on their business over time if they fail to continue addressing this issue.

The service the banking world provides in holding money and clearing monetary transactions is critical — this really does go without saying. And yet, for such a service most of us pay little or no fees on checking accounts these days.  In exchange for virtually free banking, with most banks you will probably be limited as to the number of teller deposits you can do in a month, will pay for the cost of new paper checks, and you may experience other inconveniences. The truth is, however, if you follow the bank’s rules, checking account and savings account banking activities are for the most part benign, inexpensive, and even boring activities.

But… watch out!  Many banks are struggling to return to profitability as a result of losses on loans their borrowers are unable to pay back – mortgage loans, auto loans, business loans, etc. etc… What this means is that, even though a typical month or even year may pass in your relationship with your bank of choice without incident, when you do slip up, they may not be very gracious.  Don’t expect overdraft fees or other costs to be refunded to you simply because you ask.

The NY Times had an article in today’s issue entitled “Overspending on Debit Cards Is a Boon for Banks” where they warn consumers against the fees they could run up against when using a debit card and things go wrong, and the journalist makes the astute observation that “debit has essentially changed into a stealth form of credit”. The article discusses the case of a checking account holder and debit card user who had very little money in his checking account, charged several very small items on his debit card, and got hit with $35 fees for EACH transaction, most of which were just a few dollars each. I have had this very same thing happen to me, and like the person in the article, I could not get back much of the $300 or so of fees that hit my account as a result of just a few small transactions over the course of two days.

The bottom line is this: when banks are able to hit you with fees right now, according to the terms of your checking/savings account or credit card, they are going to do it and they won’t give much, if any of them back. Because the truth of the matter is that many banks are relying on such windfalls to prop up their earnings performance — this is to be completely expected right now, even if it is frustrating to us consumers and even if the practice is borderline on the ethics scale.

So, if you interact with a bank in any way (as you should!), just be very aware of the fees you could be subjected to in the event of checking or debit card overdrafts. Remembering to deposit that check on time has never been so important.