Sources: Reuters.com: U.S. Bank Overdraft Fee Cut May Spur More Costs; WSJ.com: As Banks Retreat, Lawmakers Press Attack; WSJ.com: Democrats Soften Financial Bill.
Major U.S. Banks are waiving white flags of surrender under pressure from lawmakers to scale down overdraft fees and lessen consumer penalties. Increased customer dissatisfaction and the threat of adverse legislation has persuaded Bank of America Corp., J.P. Morgan Chase & Co. and Wells Fargo & Co. to make statements this week conceding to the imposition of voluntary limits on their own penalties and fees. The question is whether these changes will be enough to satisfy lawmakers or if these banks have even more regulation coming their way.
So far, financial institutions have committed to limiting the frequency of overdraft fees and the amounts to which overdraft fees apply. For example, Wells Fargo has stated that they will discontinue the practice of charging overdraft fees to customers who overdraw their account by $5 or less. The bank has also agreed not to charge customers more than four overdraft fees per day. J.P. Morgan has agreed to halt practices that maximize penalties, such as the practice of deducting larger transactions before smaller transactions that occur on the same day in order to penalize more transactions per day. Instead the bank will, for the most part, list charges chronologically as they come in.
During the most recent financial crisis, overdraft fees have become critically important revenue for banks. As U.S. banks experienced a dramatic decrease in their net worth, increasing the overdraft penalty and other service charges was a natural way to rebuild. Overdraft fees now account for six percent of U.S. banks’ operating revenue.
House Financial Services Committee Chairman Barney Frank has stated that although he is pleased with the compliance of America’s top banks, he still plans to pursue legislation to force overdraft policies on banks. The Federal Reserve is also considering required curbs to overdraft fees. Mr. Frank believes the fact that banks are willing to curb their fees voluntarily is confirmation that mandatory laws doing the same will not be too burdensome.
While oversight of U.S. financial institutions’ ability to charge overdraft fees is positive for customers in the sense that it will limit hidden costs, banks will likely find a way to recover some of the lost revenue through charging fees for services that had been previously free.
Discussion Questions:
1) Will congressional democrats have a hard time getting a bill through both houses that places harsh limits on the way financial institutions do business in light of the current financial climate?
2) Have overdraft fees gotten out of hand since their imposition? Is it fair for a person to have to pay $60 for overdrawing their account by $5?
3) As a consumer, are lower upfront costs preferable to higher upfront costs and the risk of hidden overdraft charges or is it the other way around?
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3 comments:
"The bank has also agreed not to charge customers more than four overdraft fees per day."
Well, THAT seems reasonable.
In regards to discussion question number 3, on one hand it could be claimed that it is unfair to make everyone pay more at the beginning to cover for irresponsible people who overdraw their accounts frequently. On the other, it is undeniable that many bank practices are used to get the most money out of people as possible. What else, other than screwing over the consumer, could be the motive behind such practices as pick-and-choosing the highest overdraft amount to collect on? I think we should also consider the demographic that most often is effected by these policies- those who are living pay check to pay check, those who typically don't have enough to "cushion" their accounts to prevent accidental overdraft. Perhaps, it is less a matter of "irresponsibility" and more an instance of banks taking advantage of people who can already ill-afford these types of charges in the first place.
Honestly, I don't mind the sentiment of the government trying to protect we the people, but I think this might be a case of too little too late. OF COURSE it's absurd that banks think it's fair to charge $60 for a $5 overdraft. Capitalism thrives on taking advantage of as many people as possible.. and it's that "winner take all" attitude that has fueled the current economic crisis, as well as the general poverty and dysfunctional social systems that have plagued this country for generations.
Personally, I think we have an opportunity here to let this system die away, and begin the process of rebuilding a system built on rational cooperation (as opposed to ruthless competition). As well-intentioned as it is, I hope this government intervention doesn't stand in the way of allowing real change to forge itself naturally. Every change this administration makes can be overturned by the next. Frankly, I'm ready for something a bit more substantive.
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