» This Story:Read +| Comments

New overdraft rules could force banks to recoup revenue through other charges

Network News

X Profile
View More Activity
Discussion Policy
Comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions. You are fully responsible for the content that you post.
Washington Post Staff Writer
Sunday, June 20, 2010

Bank of America is still suffering the wrath of District resident Philip Becnel.

This Story

More than a decade ago, when he was a student at George Mason University, Becnel overdrew his Bank of America checking account when he bought a cup of coffee, resulting in a penalty of about $40. Unaware that he was out of money, he kept using his debit card and getting whacked with penalties, racking up hundreds of dollars in overdraft charges.

Becnel paid the fines, shut down his account and switched banks. To this day, he refuses to do business with Bank of America, even though his new bank is farther from home.

"That was kind of the final straw for me," said Becnel, now a private investigator with the Dinolt Becnel & Wells Investigative Group. "The compounding of fees, it's almost criminal."

Banks have long walked a thin line on overdrafts. They are a sore point for many consumers, but the fees generate billions of dollars of revenue each year. Now the Federal Reserve has stepped in to craft new regulations aimed at preventing complaints like Becnel's.

Starting July 1, the rules will prohibit banks from automatically charging overdraft fees. Instead, consumers can decide whether they want to use the service or would rather simply have their debit cards declined. In addition, some banks have stopped charging overdraft fees if the account is a few dollars in the hole -- eliminating the infamous $40 cup of coffee -- and are capping the number of charges each day.

According to market research firm Mintel, about 25 percent of consumers it surveyed this spring indicated they would enroll in overdraft services. About 15 percent said they did not want to sign up, and the rest were either unsure or were not aware of the changes.

Read the fine print

Banking experts and even industry groups have warned that banks will need to replace the revenue they have long collected in overdraft fees. That means people might find that the fees have disappeared, only to resurface elsewhere in the form of a maintenance fee on their checking accounts, for example.

"The whole banking system is in a state of flux," said Brian Riley, research director at TowerGroup, a market research firm. "Consumers have to really read the fine print on this stuff and not go into the banks for the reward programs and the free toaster."

The new overdraft rules comes as banks grapple with tighter regulations on credit card interest rates and penalty fees mandated by Congress last year. The financial crisis ignited a populist movement to strengthen consumer protections from Washington, and Congress continues to debate the creation of an agency devoted to the issue. The Fed began drafting its new overdraft regulations last fall as lawmakers prepared bills with similar restrictions in case the Fed did not act.

Meanwhile, numerous banks braced themselves for what many saw as inevitable. According to a survey by research firm Moebs Services, nearly 14 percent of 2,000 bank and credit unions reported eliminating their overdraft programs altogether. Bank of America ended its program in March after extensive interviews with its customers.

"We heard time and time again, 'Don't let me spend money that I don't have,' " said David Owen, head of the bank's payments business.


CONTINUED     1        >


» This Story:Read +| Comments

More in Business

Time Space Economy

Time Space Economy

Explore economy news through text and photos from around the world.

WashBiz Blog

Local Companies

Post editors and writers keep you informed about the region's business community.

Economy Watch

Economy Watch

Stay updated with the latest breaking news about the financial crisis.

© 2010 The Washington Post Company

Network News

X My Profile
View More Activity