Without overdraft fees, will banks fire customers?

Witness a caricature photograph of a man watching his money literally go down the drain. That's the way many customers who have had to deal with bank overdraft feel. As laws clamp down on what banks can charge, will banks simply fire customers?

Think banks will still love their customers after more stringent overdraft laws are in place? Don't be surprised when more banks simply fire their customers. (Photo: ThinkStock)

Bank overdraft fees have been a thorny issue for consumers who have argued long and hard that a single $.01 in the red transaction should not trigger a $35 penalty plus additional daily penalties. Congress has listened to consumers, and recent financial reforms voted into place will affect just how much banks are able to collect from customers who overdraw their accounts. According to Consumer Reports, losing such a major source of income may prompt banks to “fire” customers.

Banks without their overdraft fees will not go quietly

Instances of overdraft fees are at a 10-year high according to BBC News, and the numbers are similar in the United States. The Federal Reserve recently clarified the changes to come, reports the Kansas City Star, and one look at what’s to come could make a banker sweat like they do when they lose business to no credit check payday loans companies. If they can’t rake in obscene profits from overdraft fees, then banks need to stop the bleeding caused by careless customers. As new customers will by law no longer be automatically enrolled in overdraft protection schemes after July 1 (after August 15 for existing customers), bank income will decrease dramatically.

How dramatically?

The convenience of free checking is made possible by overdraft fees, claims the Boston consulting firm Celent. Their report “Reg, Reg, Go Away: Sorry Banks, They’re Here to Stay” indicates that up to 50 percent of all revenue generated for banks by retail checking accounts comes from overdraft fees. Consumer Reports points out that the new rules governing overdraft fees don’t eliminate fees charged to cover checks or recurring bill payments, but they will crack down on debit card purchases that induce overdraft. Considering that 41 percent of overdraft fees come from debit card transactions, that’s a big chunk of change that banks will lose.

Which leads to the friendly ‘banks fire customers’ policy

Celent advises banks to simply shut down accounts of customers who are simply too expensive to keep. Where that line will be drawn remains to be seen, but all banking customers should take heed and make sure that they have enough money in the bank when they go to make a purchase or payment. Of course, no credit check payday loans and military payday loans will always be an option for those emergency situations were fast cash is necessary. They are much better alternatives than being fired by your bank for overdrafting your account.

Sources:

Consumer Reports

BBC News

Kansas City Star

Related Video:

Other recent posts by bryanh