Wednesday, September 23, 2009

Credit or Debit: The new rules of "charging it"

Posted by: Zach Lungo

It's no question that banks and other financial institutions have had a tough time making it through this economic recession. From large corporate closures and takeovers like Wachovia and Lehman brothers to vast changes like Goldman Sachs' reclassification as a bank, it is obvious every line of revenue counts. However, banks are now beginning to phase out overdraft fees and other policies.

This new change in policy could stand to be an enormous loss of profit for banks that have been struggling to stay viable and profitable. In 2007 banks earned $29 billion in overdraft fees. However, only 5 percent of customers accounted for over 68 percent of revenue from overdraft fees. Meanwhile 74 percent of customers didn't incur any overdraft fees. Traditionally, overdrawing an amount of only $6 using a Bank of America card could incur a fee of up to $35 that could potentially be applied multiple times a day. Customers who have debit cards would automatically be signed into an overdraft program that allowed them to overdraw their account and be forced to pay the overages and a penalty. The new changes will allow customers the choice of opting out of the overdraft program which would cut out a large portion of bank profits should the customer choose not to use the program.

What customers should begin to look out for are ways banks are going to begin to try to make up this lost revenue now that they will have the choice of using the overdraft program. Some of the places they may start to charge more could be in the form of online banking access, free checking accounts bundled with other services, or allowing an extended "grace" period where funds can be replenished to cover earlier purchases. JP Morgan Chase says they won't apply fees to accounts overdrawn by $5 or less. Not exactly a bargain. Ultimately, eliminating these fees can reduce the daily stress of potential overdraw situations. However, customers may begin to start being charged for services they once got for free.

Original article:


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