Dedicated to Deposits: Deals, Data, and Discussion

Another Fed Action That May Cost Savers - New Rules on Overdrafts

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Setting interest rates isn't the only way the Federal Reserve will be affecting savers. The Federal Reserve just released new rules on overdrafts which may help the careless, but may end up costing the careful savers. In the new rules that take effect on July 1, 2010, banks and credit unions are not allowed to charge consumers for overdrafts on ATM or one-time debit card transactions unless the consumer opts in for the overdraft service for those types of transactions. According to the Federal Reserve:
The Board's consumer testing shows that most consumers prefer not to be enrolled in overdraft services for ATM and one-time debit card transactions unless they affirmatively consent, or opt in. At the same time, testing shows that most consumers want overdraft services to cover important bills, such as checks they use to pay rent, utilities, and telephone bills.

I have to agree that I would not want overdraft services for ATM or debit card transactions, and I would guess that this is true with most people. However, overdraft policies have never concerned me because I'm always careful, and I've avoided overdrafts. As this Bloomberg article describes, this rule could be costly for us careful savers:
The rules may fail to produce the desired result of avoiding costs for customers, because consumer protection steps often have unintended consequences, said Bob Meara, senior analyst with Celent, a Boston-based financial research and consulting firm.

"The majority of account holders who don’t overdraft their accounts will be paying monthly service fees rather than the free checking enjoyed for the last decade," Meara said.

As this CNN article describes, Congress had also been working on legislation on overdraft fees. According to the article, the "congressional bills are tougher than the Fed's rules." However, "the current congressional proposals wouldn't go into effect until one year after passage."

How much money do banks make on overdraft fees? It was mentioned in the Bloomberg article that in 2007 overdraft fees on US accounts totaled $36.7 billion. To get an idea of its impact on an average checking acocunt, this marketing brochure from BancVue is very useful.

BancVue is the main force behind reward checking accounts, and this marketing brochure shows the benefits to banks of reward checking over free checking. In the chart at the bottom of the first page, the profit summary of reward checking is compared with free checking. A major source of profit is shown to be NSF revenues. For free checking it's $16.09 per month, and for reward checking it's $17.12 per month. This is much higher than profits they make from debit card interchange fees ($2.18 for free checking and $6.17 for reward checking).

Based on BancVue's data it sure looks likely that the new Federal Reserve rules will reduce the profits that banks make from both free and reward checking accounts. So we may see less free checking, and this may be yet another reason for banks to lower reward checking rates.


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Comments
23 Comments.
Comment #1 by Anonymous posted on
Anonymous
And why would the Feds look out for "savers" when our economy depends on consumer spending?

For years our government has been saying we are not saving enough for retirement. Yet today we get little for our savings, thanks to the Federal Reserve and their insistence on their artificially low interest rate policy, while our government is urging people to spend, spend, spend. It wasn't the working class that brought our financial system to it's knees. Yet the financial institutions who are responsible, are being rewarded by bailouts with our tax money.

1
Comment #2 by ichaelm (anonymous) posted on
ichaelm
I wouldn't be surprised if it affects savings account interest rates as well. If banks are no longer allowed to charge exorbitant and outrageous fees on deposit accounts, you know that they'll try to make it up some way or another.

1
Comment #3 by Anonymous posted on
Anonymous
Banks could make overdraft service a requirement for free checking.

1
Comment #4 by Anonymous posted on
Anonymous
To anonymous 8:28, the government DOES want you to save, just not in a bank. They want you to "save" your money in the stock market. Make sense?

1
Comment #5 by Anonymous posted on
Anonymous
Government wants us to save? Not really. If so, that would prolong the recession. It seems that a lot of money is being made from NSF or overdraft fees. I had only 1 in the last 30 years (and it was due to my attempt to "time" the posting of my checks). People must be lazy in balancing their checking accounts.

1
Comment #6 by Anonymous posted on
Anonymous
To Anonymous who posted at 1:44 PM, November 13, 2009

Mutual fund up 50% while banks offer less than 1%. Makes sense to me.

1
Comment #7 by Anonymous posted on
Anonymous
All of the money printed that were given to the banks for free, got invested on the stock market and all of a sudden the banks are showing profit, not from lending but speculating.
The banks could care less for the savers or customers with checking accounts only. They have nest egg of billions invested and are already showing profits on their books.
Congress and the Feds are just pawns to the banks and serve their needs, remember, they are to big to fail, therefore the banks are calling the shots.

1
Comment #8 by Anonymous posted on
Anonymous
I agree with the poster at 5:37 PM, November 13, 2009.

The stock market is up over 50% since March because of the taxpayer's money given to the banks for free and without any accountability. So, the banks invested it all in stocks.

People, FEDs and the Congress are protecting big business not us the consumers. The new banking rules will be circumvent by the banks with some new fees.

1
Comment #9 by Anonymous posted on
Anonymous
.

>> while our government is urging
>> people to spend, spend, spend


>> the government DOES want you to
>> save,


Government? Which branch of it are you referring to?

Judiciary? .. Nope ... don't think so.

Legislative? ... Nope ... don't think so either.

Executive? ... Well?

Federal Government? ... Well?

State Government? ... Well?


My impression is that the government is the elected (and appointed) representatives of the citizens, and they represent the will of people. ... So look inwards when you raise the finger to your representative.

.

1
Comment #10 by Anonymous posted on
Anonymous
.


>> People, FEDs and the Congress are
>> protecting big business not us
>> the consumers.

Hmm ... so people are protective big business ... Err ... are people not consumers?

.

1
Comment #11 by Anonymous posted on
Anonymous
.

>> The banks could care less for
>> the savers or customers with
>> checking accounts only.

Of course ... the primary objective of a for profit bank is to maximize the profits for their owners (shareholders). That is not merely a business objective, but the fiduciary duty of the bank.


>> Congress and the Feds are just
>> pawns to the banks and serve
>> their needs

Really? ... My impression is that Congress is for the people, by the people. ( ... Are you implying that Congress is for the banks, by the people? )


>> , remember, they are to big to
>> fail, therefore the banks are
>> calling the shots.

What shots? Historic fact is that the US Treasury pushed the monies into the banks who were not necessarily willing/eager to accept government money.

.

1
Comment #12 by Anonymous posted on
Anonymous
.


>> All of the money printed that
>> were given to the banks for free,

Nope ... that's completely wrong. Government gave money to the bank and the banks in turn gave the Government ownership (and not merely the common shares, but preferred shares) into the banks. So the money was definitely not given free. Government did get something back from the banks. In addition some of the money given was returned back to the Government - principal and interest!


>> got invested on the stock
>> market and all of a sudden the
>> banks are showing profit, not
>> from lending but speculating.

If what you say is true, then what's the problem? If the banks are showing profits, then the owners are in profit, and one of the majority ownership is with the US Government (i.e. we the people). ... which means we are in profit. ... So come again ... what's the problem here?

.

1
Comment #13 by Anonymous posted on
Anonymous
The comment that restricting overdraft fees protects the "careless" is NARROW thinking - innocent people too are taken advantage of by exorbitant overdraft fees. While traveling my friend found out that his employer had made a mistake with the direct deposit of his paycheck, and as a result my friend ended up with overdraft charges that added up to more than the associated purchases!! The bank could've prevented him from being able to make those charges with his debit card, but it did not do so, preferring to rake in the overdraft fees instead. Charging folks these outrageous overdraft fees is like hanging someone for jaywalking when there was no sidewalk to cross on. Completely ridiculous. As a saver I want good rates too, but due to overall smarter business practices, not by taking advantage of someone else's misfortune.

1
Comment #14 by Anonymous posted on
Anonymous
.


>> The comment that restricting
>> overdraft fees protects the
>> "careless" is NARROW thinking -
>> innocent people too are taken
>> advantage of by exorbitant
>> overdraft fees. While traveling
>> my friend found out that his
>> employer had made a mistake
>> with the direct deposit of his
>> paycheck, and as a result my
>> friend ended up with overdraft
>> charges that added up to more
>> than the associated purchases!!

Your friend is careless.

It is your friend's responsibility to ensure that s/he has sufficient funds in the account before s/he starts making purchases.

Your friend was careless in not checking if the deposit s/he was expecting to come thru has actually come in or not.

Excuse such as employer made a mistake, is a sign of negligence and carelessness on part of the employee.

Pointing finger at employer does not make your friend 'innocent', because s/he made an agreement with the bank regarding her/his deposit account and the overdraft fees that has nothing to do with any agreement s/he may have with his/her employer about direct deposit.

Putting blame on the employer in fact, is the NARROW thinking.


Jaywalking and hanging? ... Nice example ... but it is irrelevant in the context of your careless friend.

.

1
Comment #15 by Anonymous posted on
Anonymous
.


>> Based on BancVue's data it sure
>> looks likely that the new Federal
>> Reserve rules will reduce the
>> profits that banks make from both
>> free and reward checking
>> accounts. So we may see less free
>> checking, and this may be yet
>> another reason for banks to lower
>> reward checking rates.


BancVue's data? ... Is there any reason for you believe that BancVue's data are facts? What if is it merely a made-up number rather than fact?



>> How much money do banks make
>> on overdraft fees? It was
>> mentioned in the Bloomberg
>> article that in 2007 overdraft
>> fees on US accounts totaled
>> $36.7 billion.

Again ... the same thing. Has Bloomberg or the author(s) of the said article actually gone thru the records of thousands of US banks, and computed this figure or is it a made-up (or guessed or estimated) number?


Relying on such numbers and calling them data (facts), perhaps is not a very smart thing to do.


Few key facts that we all can agree upon are:

1) Banks (with few exceptions) are for-profit organizations.

2) Primary objective for banks (with few exceptions) is to make profit for their owners.

3) One of the ways to make profit is to offer retail saving/checking accounts to consumers, and to structure the offering in such a manner that overall it will generate profit.

4) Remove/change those offerings that are not generating sufficient profit.


Bottom line: (Most) Banks and (most) Savers are doing business with each other for their own profit.

.

1
Comment #16 by Anonymous posted on
Anonymous
"My impression is that the government is the elected (and appointed) representatives of the citizens, and they represent the will of people. ... So look inwards when you raise the finger to your representative."

Your impression is all wrong. That is the way our government is SUPPOSED to work. But in REALITY, once politicians are elected, they are self serving and cater to the lobbyist with the deepest pockets. The politicians forget they are in office to represent the public.

1
Comment #17 by Anonymous posted on
Anonymous
.


>> That is the way our government is
>> SUPPOSED to work. But in REALITY,
>> once politicians are elected,
>> they are self serving and cater
>> to the lobbyist with the deepest
>> pockets. The politicians forget
>> they are in office to represent
>> the public.

And yet every 2/4/6 years you (we) elect most of the very same self-serving incumbent politicians over and over, again and again!

As I wrote earlier, before you raise the finger at your elected representatives, look inwards!

You (we) are getting the Government you (we) elect, (and deserve). :-)

.

1
Comment #18 by Anonymous posted on
Anonymous
To Anonymous, at 2:47 PM, November 14, 2009.
You my friend are so naive and shallow in your political views.

Politicians always say what we want to hear until elected and then they forget about you and us.
If that is true statement and you agree with it, then all of your above comments are meritless and illogical. Therefore, criticizing the other posters makes you hypocrite and not intelligent in my eyes. You are not bringing anything new to this blog and by nullifying poster's thinking you actually bring resentment toward you in your negative way of posting.

This is not a contest of ideological minds nor writing a criticism makes you any smarter than the rest of us. Since, we do not know your original thinking, (because you always avoid posting of your thinking), unless you start to peck around other people posts. I have one question for you:

WHAT IS YOUR PROBLEM?

We don't need a lecturer like you, we need people with constructive thinking that will bring more knowledge and some fresh input that will enlighten our points of view. We expect you to bring some solutions to our common problems and not become one.

If you can not do that, please refrain from posting, you are not helping at all.

1
Comment #19 by Anonymous posted on
Anonymous
To: Anonymous, at 2:47 PM, November 14, 2009

I kind of like your tough & matter of fact style of posting. You have tackled government haters & bank haters very well.

Keep posting.

1
Comment #20 by Anonymous posted on
Anonymous
To the self praising poster as Anonymous, at 9:08 AM, November 15, 2009.

You are actually the same poster as Anonymous, at 2:47 PM, November 14, 2009.

You are fooling yourself and nobody else. I agree with the poster at
7:48 PM, November 14, 2009.

You are just an after thought weasel in disguise, shoo! shoo!....

1
Comment #21 by Anonymous posted on
Anonymous
As a 30 year+ Federal employee, I would tell everyone in this country not to spend and to live frugally which is how I have lived all of these 50+ years. But, then I was not elected, nor do I control the fiscal policy of this country, although I am somewhat involved in the country's "pocketbook". If people lived like I have, there would be no such thing as a "global economy" (at least from the US standpoint).

One of the things driving this low interest rate environment is the fear that the recovering economy could be derailed by raising rates. A return to a slumping economy exacerbates the unemployment rate. Then you get more homeless people.

Banks are a necessary "evil" in the world. For them to collapse means a possible national financial catastrophe. Remember what happened in France in the late 1700s when their finance system collapsed? A lot of problems with these banks is the result of many exotic ways that they dreamed up to make business (and profits) for themselves. And when they **** up, then someone has to step in and clean up the mess. Some people don't like the response on how this crisis was handled (and maybe some do). As for the issue about who is elected, I won't throw any further fuel to that topic. But someone has to occupy the seats in government (or else anarchy will reign).

1
Comment #22 by Anonymous posted on
Anonymous
Dear "Anonymous, at 11:12 AM, November 14, 2009" -

Thanks for your response, it gave me a good chuckle.

First, anyone with an IQ of any sort could understand that the point of my posting is that, though the employer made the ORIGINAL mistake, the FAULT in this example lies with the BANK. Second, your chastising the bank customer for not knowing that his employer had made a mistake with the direct deposit of his paycheck, and for the fact that he didn't check his balance before he made each and every purchase, also gave me a good laugh. (Do you think for a minute we believe YOU check your balance every single time you pull out your debit card? Ya, right.) The bank is in a FAR greater position, because of the data at its disposal, to inform it's customer of impending overdrafts, than its customer is able to determine that information himself. In other words, the bank could simply notify its customer at the time of purchase if the customer is about to go into overdraft mode. But (of course) the bank doesn't - it would prefer to reap the reward of its customers' misfortune (as in my example). And third, as to your statement that the customer “chose” overdraft protection: let’s face it, the truth about overdraft "protection" is buried in fine print so minuscule that the customer needs a microscope to find it. And we all know that's no accident. Let’s just say there's another "organization" that offers similar "protection" as well, and the name of organization starts with an "M"...

My original statement stills stands: charging folks these outrageous overdraft fees is like hanging someone for jaywalking when there was no sidewalk to cross on. Completely ridiculous. As a saver I want good rates too, but due to overall smarter business practices, not by taking advantage of someone else's misfortune.

1
Comment #23 by Anonymous posted on
Anonymous
Banks play thiw "gotcha" game all of the time. When you sign your name on any loan document, they essentially have a "hand" on your budget. They need the revenue. Otherwise, they lay off the tellers, close the branches, and forego the CEO bonus money.

1