Along came this new fangled concept: a "debit card". I have to be honest - these scared the crap out of me. It probably took me two years before I finally agreed to have my very first debit card, and don't you know, it cost me $7 to buy one? It took me another two months to finally use it, and you'd better believe, I was a nutcase at the store.
"Is there a fee for this?"
"Well, it depends on what card type you have."
"It's this one." I handed the card to the daft-faced kid behind the counter, speculatively eyeballing him while he stared dumbfounded at the card.
Two minutes later.
"Yeah, definitely, this one doesn't have no fee."
"Mmm hmm. Okay, are you sure?"
"Yeah, this one is a VISA debit card. There's only a fee if I run it like an ATM card."
Finally satisfied with what sounded like an intelligent answer, I proceeded with my transaction, and was not charged a fee.
Fast forward a few years. Here comes Fifth Third Bank, with the "Totally Free Checking Account". My ex-wife had suggested I try 5/3, because her parents swore by them. I'm like, "No way. There's no such thing as a checking account with no minimum balance and no fees. What's the catch?"
The catch, as many of you probably know, is overdraft charges.
You've got a guy like me, who keeps every receipt, records every one in the book, and balances to online banking about every week. Then you've got a huge chunk of people who, understandably so, assume that when they swipe that check card, it's immediately coming out of the account.
Not the case.
Depending on the merchant, it can take anywhere from five minutes to five business days for that transaction to even appear in your checking account. This is because various merchants will pay different fees for their credit/debit card transaction machines, and based on how much they want to pay, the transactions are either zapped to the bank immediately... on a daily basis... or on a weekly basis.
Therefore, any of you who are not as anal retentive as me with your check card reciepts and checkbook... have probably gotten hammered with cascading overdraft charges before. It sucks... but it's also why banks have Free Checking accounts. Simple math here, friends... $15 bucks a month for the account, or $0 bucks a month... with the possibility of racking up anywhere between $30 and $3,000 bucks a year in fees.
It's very similar to a concept I learned in college my professor called "The Delta Principle". Delta Airlines lowers their ticket fare... Continental has to do the same to be competitive and not lose business. So does Southwestern. The same principle applies in banking. It's why so many people have problems with overdraft charges, and it's the very same principle that got our country in trouble with subprime lending.
Now that you understand a bit more about overdrafts and the principle behind Free Checking accounts, let me tell you about Federal Regulation E.
Reg E mandates how Electronic Funds Transfers take place. This includes Check Card point of sale transactions. The changes mandate that a bank/credit union can no longer authorize a point of sale purchase into overdraft status without a customer's written permission. This change takes place August 15th, at which point all banks have to adhere to the rule.
Banks are generally calling this "Opt-In" and "Opt-Out". You are either "Opting In" to having transactions approved into overdraft status (and thus paying fees), or you are "Opting Out" - to which effect your transaction would simply be declined, causing potential embarassment or hassle, but avoiding overdraft charges.
PNC Bank, for example, is offering clients the opportunity to Opt-In or Opt-Out now. However, come August 15th, every customer who has not made a decision will be Opted Out (because they don't have their written permission yet). Consult your institution to see how they are handling it.
Side note - if you Opt In, I can almost guarantee you will never, ever, ever again get an overdraft fee refunded. You signed on the dotted line, you're paying the fee.
How does this affect Free Checking accounts? Here's how. In general, it costs a bank about $300 a year to handle a basic checking account. This takes into account things such as teller transactions, online services, service/maintenance needs, and check processing (which, by the way, is the most expensive service to run). In general, the exhuberant amount of money banks have made off chronic overspenders has more than buffered the cost of running a basic checking account. However, as you can well imagine, the people who have been hit the hardest with fees will be the ones who choose to opt-out, so banks are going to need to find another way to meet the bottom line. And no... CEO's won't be taking salary cuts.
Fifth Third Bank has already announced that they are going to cease offering the Totally Free Checking account. Who knows if and when they will stop offering it to their existing customers. Other banks are sure to follow suit (For the record, PNC and US Bank have announced that they will continue offering Free Checking accounts). What you may see are banks charging a basic monthly fee for accounts... unless you meet some other qualification that reduces cost. Such as:
- Paperless statements
- Accounts that limit checkwriting and/or branch visits
- Accounts with a minimum balance requirement (banks re-invest these funds to gain revenue)
- Accounts that focus on online/electronic activity, such as direct deposit
That's certainly a lot of information to digest, but it's wise to start thinking about it now. What can you do to avoid monthly service charges? What can you do to avoid getting stuck in BFE without gas and your card keeps getting declined? What can you do to avoid getting excessive overdraft charges since you chose to opt-in?
Consult your bank. And if you end up with some idiot for a teller or banker, come talk to me at PNC. My number is 513-272-4200 ext. 23827, and I'm paid to answer questions like these.
PS: Here's the link to the Government Website on Reg E:
http://www.fdic.gov/regulations/laws/rules/6500-3100.html
Posts
No comments:
Post a Comment