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Democrats Kill Free Checking Accounts

By: Erick Erickson (Diary)  |  June 18th, 2010 at 09:56 AM  | 

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Democrats, devoid of basic economic sense, continue to screw consumers with laws against business with very foreseeable consequences. Case in point: banks now are getting rid of free checking accounts.

Why?

Well, banks have been giving free checking accounts, but then charging irresponsible check holders overdraft fees for drawing more money out their accounts than is there.

In other words, only the spendthrifts pay.

But Congress now says banks cannot charge overdraft fees without first getting the consumer’s permission. Fat chance that will happen.

So banks are going to start charging fees merely to have a checking account.

This is not an unintended consequence. This was quite foreseeable except to Democrats.

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  • smitch61

    My “opt in” statement… crazy.. I am not in the habit of sending out bad checks, but there could always be that one time… I would rather they pay it, and charge me for it rather to have it sent back.

  • itrytobenice

    But the new rule is such:

    If a bank has an overdraft protection program, which means that they agree in advance to pay your overdrafts up to a certain number (generally around $500-$1,000), they have to get your permission regarding a particular aspect of the program. Namely, that if you initiate a debit card or ATM transaction, that you want it to approve the transaction even if it throws you into the overdrafts.

    (and please note: some banks have an overdraft program where overdrafts kick in a loan, similar to a credit card. Those programs are not affected by this change, as they are regulated by Reg Z and are not charged or accounted for as true overdrafts, but rather loan advances)

    Once you decide if you want that to be the case, it is the case for all that class of transactions unless you change your mind and notify them of the change. You do not have the right to reject a particular item or an overdraft fee. You just have the right to decide in advance that you want your ATM/debit card to reject if you don’t have sufficient funds to cover the transaction.

    According to the article, BoA is considering getting rid of the program because of the regulatory burden, but in terms of new regulations we are dealing with, this one is a fart in a whirlwind and not nearly as onerous as they are making it out to be. Most banks are already working toward compliance and won’t discontinue the program.

  • somewhereintheusa

    I am not sure what the problem is with requiring people to opt in to overdraft protection on their checking account. Bank accounts are not credit cards, and you should only really be able to withdraw what you actually have in the account anyways.

    If you need credit that’s what credit cards, and loans are for.

    On top of that you already have to fill out all sorts of paperwork to open a checking account anyways. Whats the problem with one more piece of paper allowing you to choose whether you want such a “protection” or not.

    The only way this law hurts banks is if customers really don’t want overdraft protection… and in that case boo hoo.

  • itrytobenice

    some banks’ programs have never allowed customers to access their ODP from an ATM or with a debit card and those banks are not going to have to change their program.

    Other banks do allow ATM/debit to go into ODP. As far as I know, there are no banks that are going to set up a difference between the customers where some customers have opted into ATM ODs and others have opted out. If their program allows ATM ODs, you will either opt in or you will no longer have ODP at all.

  • Achance

    We’d really only dealt with the very conservative and very local 1st National Bank of Anchorage (now of Alaska). They’re one of those old-fashioned banks where the Branch Manager knows all the longtime customers and the service is great, but they won’t loan you any money unless you can prove you don’t need it and your credit card or ATM/Debit Card will go tilt on you at the most embarassing time.

    So, when the oldest went to college down South, we set up an account for him with Wells Fargo, which had come to Alaska by buying out the National Bank of Alaska, another old family operated bank. With the Wells Fargo account, he could bank in CA and we could keep tabs on him – and put money in his account – from here. Wow, was that a different world; everything they do is calculated to charge you some sort of fee. And of course the kid is stupid about money because he’s never had to manage money beyond asking his mother for more, so he thinks an ATM is the key to the bank vault and checking his balance first was a foreign concept, one to which he was amazingly resistant. I swear during the whole time he was in college, I’d almost wager that he spent more on ATM overdraft fees than on actual expenses from his checking account. Nothing says stupid like a $40 overdraft fee for buying a $5 meal at McDonalds!

  • Aaron Gardner

    It’s that Banks will simply opt to have all accounts charged a fee rather than just those who abuse their accounts. It won’t be a matter of the consumer opting in or out of Overdraft.

    This happens when the government purposefully creates an unprofitable environment for businesses to operate in.

    Essentially, banks will now charge me and two others because a forth guy thinks that if he has checks he has cash.

    This will also affect the lower wage earners ability to open and maintain a checking account.

    Trust me, this is worse than just another form that needs to be filled out.

  • itrytobenice

    and point out something else:

    If you opt out, or if your bank doesn’t approve ATM/debit ODs, you won’t have a charge for a rejected transaction with your card (which could save you some money), but if you opt out, the bank will return your nonsufficient items (NSF). Here’s the bad news: a returned nonsufficient item costs the same as a paid NSF item as far as bank charges go (in most states). A paid NSF item is paid by the bank even though it overdraws your account but the person who received the item doesn’t get it back or know that you hot checked him.

    If we return your item as NSF, you have to pay the same bank fee, plus a returned item fee from the payee. So if your bank offers ODP, it’s a good idea to accept it and never use it. It’s an expensive and irresponsible way to manage your account, but it can save you some embarrassment and expense if you screw up your account sometime or another.

  • Hugh
  • singingcactus

    In the leftist utopia, companies (banks) would sell products (checking accounts) without charging any fees for the good of society. The profit motive should not drive companies. If it does, they’re evil!

    On the other hand, writing that just gave me an idea for a non-profit bank devoted to checking and simple savings accounts. How many federal grants and agencies do you think are available to keep such an investment…er, I mean, ‘charitable foundation’…afloat?

  • singingcactus

    In the leftist utopia, companies (banks) would sell products (checking accounts) without charging any fees for the good of society. The profit motive should not drive companies. If it does, they’re evil!

    On the other hand, writing that just gave me an idea for a non-profit bank devoted to checking and simple savings accounts. How many federal grants and agencies do you think are available to keep such an investment…er, I mean, ‘charitable foundation’…afloat?

  • itrytobenice

    We charge the same fee for overdrafts and for NSF as we always did. But when we put up a little sign that said we will pay your overdrafts up to $600 with no questions asked (we made ours where you had to have your account open for 6 months first) people started writing hot checks at a much higher rate.

    It’s almost like we gave them permission to be stupid and they took us up on it. We only charge $25 per item, which is less than some states allow, but it’s dang sure profitable.

    You can’t believe how many people will pay hundreds of dollars a month to clear their checks when they would *never* write a hot one to someone.

    So, yeah, when people opt out it will costs us money, but we don’t think very much. For one thing, the people who are opting out are those who would *die* before they would let us charge them $25 bucks for a check and are very conservative. The ones who are opting in are the ones who worry that there is a chance they might need it or already use it, so I don’t think we’re going to lose anything.

  • itrytobenice

    But I hope he pulls out of it.

    My brother-in-law’s buddy came to me a few years ago to help him figure out why he was broke all the time. I took over his checking account and started paying his bills for him and giving him an allowance every week.

    He was paying his bills by check-by-phone after they were past due. So every time he made a payment on his credit card account, it was costing him $60-$80 in late and check-by-phone fees. He had borrowed about $1,500 for some kind of furniture, was paying 20% on it and all those fees. He had already paid for the furniture in terms of cash out of his pocket, but still owed them about $1,300.

    He was also paying about $500 per month in overdraft fees. No kidding, he would go to lunch, use his debit card at Subway, get a $5 sub and pay $30 for bank fees. Now, all his bills are paid off, and he’s got hundreds of dollars a week for running money. He’s rich and happy. And all he has to pay me is he has to keep my lawn mowers and 4-wheelers running (he’s a mechanic). Everyone like that should have someone like me. :)

  • itrytobenice

    He’s a lot smarter than that. I think he’s just bemoaning the fact that they got such a good bead on his kid. And that a young un’s foolishness can be bloody expensive.

  • Achance

    I think it is a willfully predatory business practice though to allow ATM overdrafts if you don’t have the ATM set up to go to a credit card cash advance. I think anyone who’d willfully pay the fees for that is just pig stupid, but I know you can get in trouble sometimes. An ATM/Debit card isn’t like a paper check that might take days to process; that computer knows exactly how much money is in the account the second you swipe it.

    I’ve seen enough of how some of these banks, including Wells Fargo come after high school and college students like vultures. My mailbox used to be full of credit card offers to the kids and once they turn 18 there’s nothing you can do to stop a kid from being stupid if they want and the privacy rules keep you from even finding out what they’re doing unless they’re willing to let you. There are one Helluva bunch of young people out there who have a very hard row to hoe because of poor credit. Banks used to have these rules about character, credit, and capacity. Sorry, but an 18 year old has likely done little or nothing to demonstrate character, usually has no established credit, and only has as much capacity to pay as his/her parents’ familial feelings might dictate. Yet, my kids were getting pre-approved credit card offers with astounding limits and of course the usual no fee, low interest that after a few months, you know if you read the small print, went to usurious interest rates and stiff fees.

    So, yes, Wells Fargo’s business practices are predatory towards the poor and stupid and, given a choice, I wouldn’t do business with them or any other bank that behaved the way they do. But if somebody else does so, it is their fault for being there.

  • itrytobenice

    good luck with that.

  • Achance

    of high school and college kids until the “credit crunch” tightened up lending. As I said below, from late high school, my mailbox was full of offers of pre-approved credit cards with astounding limits to kids with no demonstrated credit, unproven character, and no income other than student loans and what they could get out of us. Why on earth would somebody loan money to someone like that?

  • itrytobenice

    Those who manage their accounts but have an emergency somewhere where they don’t have access to other resources might be saved a great deal of trouble if they can get access to emergency cash at an ATM, even if they don’t have it in the bank.

    For example, I have an account that I don’t keep a lot of money in, but it has ODP and I have an ATM card on it. If I’m ever in desperate need of money, I’ll pay the $25 and get it. Sometimes that’s d@mn cheap.

  • Achance

    to his fiance rather than his mother about his profligacy, his money management skills have improved markedly. That said, he with his mother’s help couldn’t bear living like a starving college student so he has student loans that cost a Helluva lot more than his degree is worth that have to come off the top every month and bad credit so he has to live on the one easy payment plan. It’s tough on somebody who was used to having anything he wanted an had no concept of what any of it cost.

  • Hugh
  • Richard Mullins

    It’s been better and they work out well for the Member. Banks don’t do that. The Credit union looks out for the Member and when you have Overdraft fees, it’s always lower than a bank.

  • Achance
  • itrytobenice

    It’s tough that he screwed up his credit, but living on the one easy payment plan is the very best way to go at his age.

  • singingcactus

    I know all too well how widespread the use of overdraft protection is. Your argument is well taken, but I think the real unpredictability is not with adults who have had previous checking accounts, it is with kids opening their first checking account. Young people tend to learn correct spending habits over the course of the first few years of their checking account (or credit card). I got the impression that a good amount of money that banks made from overdraft fees came from people under the age of 25.

    I can see a mother entering a bank withher son to open the kid’s first checking account at 18. The mother wants to be on the account, because she falsely believe she will be able to control the son’s spending habits. When the mother hears about overdraft protection, she does not let the kid opt in, instead letting him write hot checks, rather than costing her credit rating and fees. She believes that will never happen (she is right because he’ll never write a check, only use a debit card).

    If kids can’t overdraft on their debit card, that is a lot of fees the bank is giving up, unless, as Erick originally pointed out, they drop free checking altogether and charge a monthly fee or an item fee.

  • singingcactus

    I know all too well how widespread the use of overdraft protection is. Your argument is well taken, but I think the real unpredictability is not with adults who have had previous checking accounts, it is with kids opening their first checking account. Young people tend to learn correct spending habits over the course of the first few years of their checking account (or credit card). I got the impression that a good amount of money that banks made from overdraft fees came from people under the age of 25.

    I can see a mother entering a bank withher son to open the kid’s first checking account at 18. The mother wants to be on the account, because she falsely believe she will be able to control the son’s spending habits. When the mother hears about overdraft protection, she does not let the kid opt in, instead letting him write hot checks, rather than costing her credit rating and fees. She believes that will never happen (she is right because he’ll never write a check, only use a debit card).

    If kids can’t overdraft on their debit card, that is a lot of fees the bank is giving up, unless, as Erick originally pointed out, they drop free checking altogether and charge a monthly fee or an item fee.

  • itrytobenice
  • Hugh
  • itrytobenice

    CUs are nonprofits and as long as they are well managed and are able to keep their expenses down to reasonable levels, they are cheaper to bank with than banks.

    For banks, ROE has to come from somewhere and unfortunately, the money doesn’t breed in the vault; we have to get it from the customers.

  • deano64

    Get ready to pay each time you use your debit card or monthly fee if you use a debit card. The big box retailers lobbied and the current financial deform bill has an amendment that allows federal regulators to control interchange fees. Interchange fees are what retailers pay each time a debit card is swiped. What do they get? Access to a system that works 24/7, 365 days a year almost anywhere in the world; protection from employee theft; reduction in in-house operational costs; making internet sales possible; increasing “foot-traffic” to retailers; and providing guaranteed payment (e.g., if the purchase occurred using a fraudulent card, the bank takes the loss while the merchant still gets paid).
    The Durbin amendment would result in the direct transfer of dollars out of the consumers pockets for the sole purpose of increasing profits at big-box and other retailers. There will be no benefit to consumers.

  • Achance

    until my late thirties. When I was this kid’s age, I was married and had a good job. Sears and Penney’s would give me a credit card with a $3 -500 limit max and take that card away in a heartbeat if you missed a payment. Same with Visa/MC, maybe $3 -500 limit. My kids were getting pre-approvals for $5000 or more limits when they were still in high school. As long as they were with us, we wouldn’t let them take them, but once they were away from home, we wouldn’t even know about it until they got in trouble and wanted help, which unfortunately, their mother would usually give them. She’s finally cut them loose – I think – so they’re being a lot more responsible – today.

  • itrytobenice

    Seriously, you can’t believe how many parents paid their kids’ credit cards off because they didn’t want Jr. ruining his credit when he was still so young. It was a cash cow. We didn’t do it, but all the big lenders were in on it.

    And I’m not sure the parents did their kids any favors. Sometimes they just put off the inevitable. The kid who ran up a credit card he couldn’t pay, just to give it to Pops, didn’t likely learn the hard lessons of delayed gratification. And usury.

    But now you can’t give anyone under 21 a credit card unless an adult signs for it. Which sucks if you’re a responsible young married who really just needs a credit card for emergencies etc, but such is life. Ladybugs on a fly strip.

  • Achance
  • itrytobenice

    but we’ve always allowed people to opt out of ODP if they want to, even before we were required to do so.

  • Richard Mullins

    In Universal City,TX(well more like Randolph AFB) and have done well with them for the last 5 years. Before that I was with a bigger CU for 10 yrs(Security Service Federal Credit Union. I get . 10 back on Transactions on my debit card made via the MasterCard network. I’m sure that this legislation is going to but a stop to that as well. It’s fairly good for me because I usually get a $20+ Refund check in February because of it. I think it’s going to be better than that this year.

  • itrytobenice

    But I’d argue that you’ve also been rude. Don’t try to put words in someone else’s mouth or distort what they posted. It’s not polite.

  • tdwatts Watts

    Here’s an idea – if you don’t have the money, don’t try to spend it. Stuff happens, so you should have a little set aside for emergencies.

    http://www.hulu.com/watch/1389/saturday-night-live-dont-buy-stuff

  • itrytobenice

    And it’s still going on to a certain extent. I could destroy myself with credit cards right now if I wanted to. Some of my cards have limits of around $30,000. And interest rates approaching 20%.

    I guess the lenders aren’t completely nuts, because I’m 45 and would eat salted cardboard and work 3 jobs before I’d let them get their hooks in me that way, but I can sure see how people who didn’t know all the pitfalls could get suckered into a real problem.

  • Achance

    credit cards in our early married days. We had a gas card and that was it, and we rarely used it. ‘Course, people don’t really realize how different the World was in the early ’70s from today. Most of the stuff in my house didn’t even exist when Wife v. 1.0 and I got married in ’70 and no young couple expected to have a house or even a fully furnished apartment. The only things you really needed were a decent bed and a good stereo; the rest would take care of itself. You didn’t have every nook and cranny filled with the latest consumer goodie because most of it didn’t even exist. Actually, since I pretty soon had a good job and we had the GI bill (good inlaws) we lived better than most of our peers but we did almost none of it on credit other than the kind of store credit they had back then and some layaway. They’ve actually brought back layaway here in Juneau. The crew on the cruise ships don’t really make the kind of money it takes to buy the consumer products available in the US – even though a lot of it is made in their countries. So, a lot of the shops have brought back layaway so a crew member can put that dreamed of stereo or camera, whatever, on layaway early in the season and get it paid off bit by bit before the end of the season. Then he can go back to Indonesia or the Phillipines and act like royalty with his new toy.

  • somewhereintheusa

    but that would require people to be responsible with their money :)

    I never understood why people have so much trouble living within their means. I mean how hard is it to put a little bit in savings each month, build up an emergency fund of at least several months of income, and pay your bills off on time every time. If you follow those easy steps you will be better off than 95% of the population.

  • Hugh

    My beef with this conversation is that it seems that we have fallen into the trap of blaming large business for our personal short comings. That is what I expect from liberals. I know that both of you are not. There seems to be more of that anti-business tone here at RS than I remember in the past. Both of you are probably really nice people and so am I. The problem and the enemy is not us but the but the crowd in control in DC. My goal is to change that. I hope that’s yours too.

  • acat

    \It’s only good if I first take offense, you see, which means that you’re not sorry for the statement, rather for the offense taken.

    Either you recognize you made an error, or you don’t, and a conditional-apology doesn’t indicate either way.

    Please pick one.

    Mew

  • Hugh

    I was also offended by being called stupid. At this point maybe the best thing is to call off the dogs from the hunt.

  • pamela1631

    Started for me when I received an allowance at age 7.

    Along with the allowance of .25 cents a week, I was presented with a small green accounts book. I would enter any receipt or expenditure.
    Then present the book on Saturday to show the balance and the money on hand. Babysitting, car washing and lawn mowing money went into the ledger over the years.

    Savings, checking accounts and budgets came later.
    So did a career in accounting.
    Plus balancing to the penny has a certain satisfaction.

    Parents- get the small green accounts book and teach your children well.

  • http://andrightlyso.com/ civil_truth

    At least that’s what I what I thought I read when one of my banks was urging me to opt-in (which I have not). Their explanation of the program seemed to indicate that if you opt out, the consequence will be that such transactions will be declined if your balance is insufficient. So the choice is between executing the transaction and paying an overdraft fee if you opt-in, or having the transaction declined (but incurring no fee) with opt-out.

    I was not aware that this restriction also applied to insufficent funds for checks presented for collection, because in that situation, as you note, the customer faces charges either way – either overdraft or NSF charges, and NSF is far worse because of extra charges and embarrasement/consequences from the check payee. So in this situation, overdraft protection is a lesser of evils. That puts a whole different face on it.

    But again, this is the first I’ve heard of the restriction applying beyond ATM/debt cards. Are you sure about this?

    And another bank of mine will allow an automatic “overdraft” from a linked savings account without charging you (possibly restricting this to X transactions per month, I don’t know), which of course involves an implicit “opt-in”. That’s even better still.

  • bargeman

    If you have overdraft protection( $500.00 preapprovee line of credit,banks give to people with good credit) then if you write a overdrafted check they pay it and you pay back the loan for some intrest and no worries. The other scam is thatif you sign they will charge you and overdraft fee and pay your check. If you do not sign then they will not pay your charge and everyone around you at the checkout will know you are broke andthe bank will still charge you the fee. DO NOT TRY AND SPEND MONEY YOUDO NOT HAVE OR PAY A FEE AND QUIT CRYING. I have protection so I do not worry, but I check my account every few days so I do not overdraft.I have overdraft protection for emergencies.

  • acat

    Your reading comprehension is weak.

    “I apologize if you believe that I was rude” is pocking conditional.

    The presence of the word “if” in the middle of the sentence makes it conditional – it establishes the condition of belief in your rudeness as a requirement for the offering of the apology.

    And achance is also correct that banks practice predatory lending, deliberately seeking out immature-but-legally-adult people and hoping for either a payoff from mommy-and-daddy or a lifetime of higher interest and fees …

    Mew

  • Hugh
  • Scope

    You are picking nits. If the term “if” leads you to believe that Hugh’s apology was not sufficient, then you are not a sufficient commentor. I don’t agree with Hugh many times, but, you are doing nothing more than “piling on” and, for what reason is unknown. You remind me of Clinton with what the definition of is is, and that ain’t cutting it, or classy. You are weakly piling on period.

  • southernilpat

    I’ve got news for you. Those who will be most affected negatively by this will be the low income population, who really don’t need checking accounts to begin with. For the rest, it will simply go back to the way it used to be – you keep a certain balance and you aren’t charged a monthly fee. Of course, then people will go back to whining about how they only went ONE DOLLAR under the required minimum balance and the EVIL BANK charged them the monthly fee.

    The government should stay out of it. Not because it made “free” checking go away but because it’s not government’s business.

  • Achance

    And, yes, you did do one of those Democrat “sorry if you were offended” non-apologies. Anyway, you’re still stupid and you still put words in my mouth that I didn’t say, but reading your posting history, it seems that is mostly what you do. You can join the other “more perfect conservatives” here; I see Scope, one of the resident dimbulbs, has joined the thread in your defense, so you’re in good company.

  • Achance

    anything you post; I know it has no value. It won’t bother me for you to do the same for me.

  • acat

    Hugh’s apology is s at best an improper use of grammar, and at worst an intentional ducking of the blame. It’s an abuse of language that I happen to find offensive because it’s deliberately imprecise.

    Maybe Hugh didn’t mean it that way, maybe I should have given benefit-of-doubt, but .. it grates on my nerves, and I said something about it.

    You can call it piling on all you like, you can compare me to clinton all you like. While he may be an unethical weasel, I would have hoped conservatives would have learned to be very precise with their word choices after clinton. I see I shall have to be disappointed.

    Mew

  • itrytobenice

    The change in the law only affected ATM/Debit but most banks aren’t willing to set up two different ODP programs. With ours, (and with most of the others with whom I have had any conversations at seminars) you can either have ODP or opt out of it.

    We don’t want to jack with two different programs. Your bank may be willing to do so however. Just check with them.

  • EMT907

    I just opened a free checking account with Chase on Friday. I wanted the Continental debit card with a special offer of 25,000 bonus miles. The guy said the account is free with direct deposit. He also said that the overdraft protection was free. When it came down to signing the paperwork, I had to initial next to a choice for the protection or not.

    I asked again if it was free and he told me yes and explained that recent legislation had made it so.

  • EMT907

    The account also has a built in feature of a set amount I choose and it won’t let me spend more than that.