Unfree Checking

Bank regulation payoff

The very notion of monthly fees for checking accounts was until recently another scalp on the belt of technology, like paying for porn or worrying about the length of a long-distance call. But the era of free checking may be coming to an end, thanks to new consumer protection rules issued by the Federal Reserve under pressure from Congress and the White House.

More than half of all checking accounts are currently unprofitable, according to a May report by the financial research firm Celent. Overdraft fees minimized the losses on the smallest accounts. But the new rules, which kicked in on July 1, prohibit overdraft fees without a customer's explicit consent. So now many banks are instead choosing to spread those costs evenly by charging poorer people monthly fees.

People who have a lot of money in their accounts, use a bank credit card, or employ bank-based investment advisers won't pay the new fees. Only people with small, relatively low-volume accounts will. The increased costs are likely to push marginal customers out of the traditional banking system altogether. They will turn instead to companies that cater to the "unbanked"—that is, to check cashers and pawn shops.

Having triggered this near-future cascade of fees and departures from mainstream banking, Congress is now gearing up to regulate payday lenders and other institutions that cater to the unbanked. ATM fees are also up for increased congressional scrutiny. No word yet on whether Congress will be announcing new regulations on mattress manufacturers to prevent customers from stuffing cash under the bed.