There Ain't No Such Thing as a Free Checking Account

Not say we told you so, but: We told you so.

As noted in this morning's links, thanks to new regulations designed to protect consumers free checking is, like, so over. Maintaining low-balance accounts costs banks money, and the cash that came in from overdraft fees meant that customers who overdrew their accounts were subsidizing the folks who kept low balances but were careful not to overdraw. But when you make it harder to charge those fees, banks don't just shrug and say "OK, I guess we'll make less money from now on. Under the new system, banks are looking to replace overdraft fee income with other kinds of fee income.

At Bank of America, for instance, some of those nefarious semi-secret overdraft fees will be replaced with (semi-secret?) fees for using tellers or receiving paper statements.

To make up for lost fees, [Bank of America CEO Brian Moynihan] started thinking of new products. In August, the bank introduced a new "eBanking" account, where customers were offered a free checking account if they banked online. The catch: If they opt for paper statements, or want access to tellers for basic transactions, they would be charged a monthly fee of $8.95.

Bank officials are putting a good face on the end of overdraft fees, saying that they were losing customers because of the practice.

Checking accounts were being closed at an annual rate of 18 percent, said [BoA CEO Moynihan], and complaints were at an all-time high. So Moynihan ended overdraft charges on small debit card transactions. He says the rate of account closings have since dropped 27 percent.

But banks could have discontinued the practice on their own anytime. The new regulations aren't doing banks any favors. The regs benefit a subset of chronic overdrafters who couldn't figure out how to change their behavior and occasional overdrafters who didn't know the rules. But those costs didn't vanish: They have been redistributed to everyone with a low balance account—keep in mind that (for the most part) accounts with high balances, bank credit cards, or other products geared to the middle class and rich won't be affected by these changes—and the fees now adhere to responsible banking behaviors, like staying informed about your balance or visiting a teller.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • luftwaffe||

    So the bottom line is that "free" checking as we knew it was funded by fiscally irresponsible people like me who would overdraw their accounts and pay the overdraft fees?

    So the tea baggers want people to be irresponsible and generate fees that they can benefit from?

    Why should I pay for a tea bagger to have free checking, they should be personally responsible enough to pay for their own free checking.

  • ||

    Where Have All the Good Trolls Gone?

  • ||

    Troll...or BoA mole?

  • hmm||

    Troll Mole.

  • SLO||

    You have to pay the Troll toll.

  • Fiscal Meth||

    It sounds like you're saying boy's hole.

  • West Texas Boy||

    I will keep on kvetching, while you all have a beeeeeeeeer

  • Colonel_Angus||

    No, you agreed to the terms of a contract that said there would be fees for being irresponsible.

  • Old Mexican||

    Re: luftwaffe,

    So the tea baggers want people to be irresponsible and generate fees that they can benefit from?

    Why don't you ask a tea bagger? You must know a few . . .

  • ||

    Short answers:

    1. Yes.
    2. Yes.
    3. Because you are so goddamn stupid.

    Any further questions?

  • waffles||

    whoa, deja' vu

  • Ballpunch||

    This was one of the few working examples of a "Stupid Tax" in practice, and I'm sure you'll be delighted to hear that Joe Biden thanks you for your patriotic payments.

    Oh, and BTW, if you can't balance a checkbook, you should not be allowed to vote or drive. An overdraft fee is getting off lightly, from a Darwinian perspective.

  • Fiscal Meth||

    Oh you mean those teabaggers.

    So what's the new name for people like me who like to gargle balls? I feel as though I'm left with no identity.

  • ||

    You mean those guys who ride Harleys?

  • Gilbert Martin||

    "The regs benefit a subset of chronic overdrafters who couldn't figure out how to change their behavior and occasional overdrafters who didn't know the rules. But those costs didn't vanish: They have been redistributed to everyone with a low balance account"

    Well that's usually the way it is with government meddling, isn't it?

    Punish the responsible people and reward the irresponsible ones.

    Just like the Fed policy of driving interest rates to zero. It punishes savers and investors to benefit profiligate borrowers and all the people who securitized the debt took on by them.

    And just like forcing the taxpayers to bail out GM, Chyrsler, Fannie and Freddie and trying to prop up the real estate market to bail out those who bought too high during the real estate boom thinking the market would keep going up.

  • Colonel_Angus||

    Hooray it looks like check cashing places are going to end up with a bunch more poor customers. Isn't that what the progressives wanted?

    Good times.

  • hmm||

    Why wouldn't they want this? The few studies I have seen on check cashing and payday loans tend to do far more good than harm.

  • Colonel_Angus||

    If its good for people, then the progressives wouldn't want it. So they fucked up. Time for more regulation.

  • ||

    Check cashing is better than nothing, for people who can't qualify for a regular account. But forcing people through regulation to use check cashing isn't.

    "People freely choosing A is good, therefore using regulation to force people to choose A is good" is a common faulty argument.

    Applies to things like broadband, where it appears that people who don't have broadband don't really want it, whereas people who do think that the government should spend money giving it to the people who don't have it. Because they obviously don't know what they're missing.

  • Old Mexican||

    The regs [...]

    Wlcom 2 D textng age.

  • hmm||

    I can't wait for 3D texting!

  • ||

    I just can't figure it out. "Text upwards, not northwards" hasn't helped a bit.

  • Ted S.||

    We must text forward, not backward; upward, not forward; and always twirling, twirling, twirling toward freedom!

  • Almanian||

    OMG, OM - LOL!

  • Tman||

    Also,

    But when you make it harder to charge those fees for pre-existing conditions, banks Insurance companies don't just shrug and say "OK, I guess we'll make less money from now on".

    But you can keep your own doctor and your healthcare costs should go down.

    But that checking account, we probably need to tax it somehow.

  • doomboy||

    Whats wrong with paying extra if you want extra services, like paper statements or human tellers? Those things cost money, you still can have free checking if you use online banking.

  • luftwaffe||

    but they get a free loan from me to pay for those services.

  • pmains||

    It's not a loan. You don't get the "stupid tax" back at some later date. If you want to stop paying the tax, stop being stupid.

    Oh, wait. Our stupid, economics-denier president wants to make America safe for idiots like himself. Never mind.

  • Zeb||

    I think he was referring to the money in the account as a loan to the bank. Which is, as far as I understand, the way banking has worked for a long time: they get to use your money for loans and stuff and you get to keep your money in a relatively safe place for free, or even for a small interest payment if you have enough money and the right kind of account.

  • ||

    The banks don't really loan all your dollars you deposit. They throw it away on bs marketing and shit "incetive" freebies to lore more people into their ponzi scheme. They have to keep attracting new customers daily or their bs will catch up with them and they will be ruined.

    As of now US Congress is making it mandatory for banks to keep 30% of their deposits in cash reserve when it has been only 10%. This will be good, but it's only going to require the banks to raise more money by charging more and more fees day after day until we the people take back the power we once had. Once upon a time banks used to serve us, now we serve them. I found Spotbanks and they look promising. Look 'em up. "let's turn the table!"

  • ||

    The banks don't really loan all your dollars you deposit. They throw it away on bs marketing and shit "incetive" freebies to lore more people into their ponzi scheme. They have to keep attracting new customers daily or their bs will catch up with them and they will be ruined.

    As of now US Congress is making it mandatory for banks to keep 30% of their deposits in cash reserve when it has been only 10%. This will be good, but banks cant get rid of their "toxic" assets to anyone and it's only going to require the banks to raise more money by charging more and more fees day after day until we the people take back the power we once had. Once upon a time banks used to serve us, now we serve them. I found Spotbanks and they look promising. Look 'em up. "let's turn the table!"

  • Colonel_Angus||

    It is between the business and the customers to decide how those things will be paid for. Do you think online banking is also completely free for the bank? Now everyone will be paying the same fees, and there is no incentive to keep people responsible.

    The bank really should just sue the people who overdraw.

  • ||

    The bank should just decline the charge for overdrafts. When a credit card reaches it's limit, the card can be set to tell the store to not accept it. Same can be done for debit or check cards, I'm sure. Just decline payment. Problem solved.

  • West Texas Boy||

    Yeah, but paper checks are also a big part of the problem.

    Thing is, this all came out of rent seeking by the banks trying to capture for themselves the "returned check fees" normally charged by merchants. Since the bank was ultimately the controlling party of the check transaction, the bank just leveraged that power to start assessing those fees for themselves. Now we'll just go back to the way it used to be and people who bounce checks will still have to pay for it.

  • ||

    A big part of the problem, checks aside, is that debit transactions (use a PIN) typically transfer immediately while credit transactions (sign or input zip code) take a few days to process. So you could buy gas and go out out to dinner by charging your card as credit, but then you go to the movies and buy something at the store using debit and it is processed immediately.

    Yes, people should be more aware of their money situation, but it doesn't help when half the stuff doesn't show up online for review for 5-7 days.

  • zoltan||

    They make these things called checkbooks where you enter every expenditure and can also keep track of your balance. No computer necessary!

  • doomboy||

    I am pretty sure they can still charge overdraft fees, they just can't charge a fee that is much higher than the overdrafted amount, or order the charges posted to maximize the number of separate overdraft fees charged.

  • LiBankerTarian||

    Mmmmmmmwaaaahahahahaha!!

    You'll always be two steps behind us, when you need to be three steps ahead!!

    Rodrigo! Could you please collect my monocle from the carpet? It fell off while I was laughing maniacally. There's a good boy...now go throw another Mexican child on the fire, won't you...

  • creech||

    Are there any non-governmental regulations preventing those horrified by this from setting up some sort of co-op bank that provides free checking?
    One wonders why the tens of millions who voted Democratic in 2008 don't generally have the entreprenuerial gumption to go out and compete against the legions of profit-grubbing, consumer-hating business that infest every corner of the U.S. economic system.

  • Barely Suppressed Rage||

    Banking is so incredibly regulated, I wouldn't even know where or how to start such a thing.

  • Trespassers W||

    Um, there are plenty of governmental regulations that make it not so easy.

  • ||

    One wonders why the tens of millions who voted Democratic in 2008 don't generally have the entreprenuerial gumption

    Answer, meet question.

  • roystgnr||

    Forget about deposits, how about payday loans? You don't even need to hire an accountant for that, just have a few weeks income saved up. After the economic innumerates are done whining about "OMG paying $475 for next week's $500 paycheck is 14400% annual interest!!1!", they can decide how much *they* would charge to hand out wads of cash to broke people they just met.

  • Barely Suppressed Rage||

    I don't know how many of you are old enough to remember when ATMs started coming out - but I remember it well.

    Some people resisted, because they liked the personal service and human interaction of using a teller, and distrusted this machine in withdrawing or depositing money to their accounts.

    The banks sold the idea by explaining that the ATMs would save them lots and lots of money, because they would not have to have as many tellers, so your banking would get cheaper. See, ATMs make banking more efficient and less expensive, so we can pass those savings along to you!!

    And then they started charging ATM fees....

    Yes, there was a time when ATMs were free. Now, it's a feature - a "gimme" that your bank MIGHT give you IF you use their machines. I'd love to know what happened to their bullshit that ATMs were going to save them money by not having to use tellers.

  • ||

    And in this fairytale past, could you use the tellers at a different bank to access your account?

    No, they'd tell you to go to your own bank and they couldn't sell you that service at any price? Then I guess it's not the same at all.

    BTW, Banks typically don't charge you to use their own ATMs. If your bank does, you have a uniquely terrible one and should switch.

  • Colonel_Angus||

    My small bank dropped out of an ATM network. Now they just pay the ATM fees if I use any ATM.

  • Almanian||

    Damned kids with their ATMs and cell phones and internets and iEverythings...

    Back in MY day, we had to make our own money from dried maple leaves, and there were no banks, and if you didn't have a place to store your dried-leaf money, roving bands of feral anchor babies would come and chop you up with machetes and take it...but that's how it was and we LIKED it....

  • pmains||

    Other banks' ATMs still charge me fees, but all of my fees are reimbursed by my bank. Sucks to be you.

  • Ballpunch||

    Back in the pioneer days when we first started using ATMs - and I'm going back to Reagan's first term here - the cross-network charge usually amounted to 25 to 50 cents... and that was when there was an actual incremental cost associated with passing the transaction data from one network to another (Cirrus to Shazam, for instance). It's completely homogenous today, technologically - yet the fees can run upward of $2.50.

    The great thing is, I don't get socked with the fee BECAUSE I'M NOT STUPID so it doesn't matter to me how high the fees go.

    If it keeps my bank solvent, I say soak the morons every chance you get. The only people hurt are the Internet scammers who would get their hands on their money otherwise.

  • ||

    And back then, there weren't ATMs at malls and airports, and you couldn't use your debit card to get cash at grocery stores.

    Being able to charge a higher fee does wonders for making a service more available.

  • ||

    My bank refunds every ATM fee that I pay. Of course, I use an ATM about twice a month. Still . . . .

  • ||

    When I opened my first checking account, it started my death spiral of fiscal irresponsibility.

  • Almanian McMillan||

    You know why people bounce checks and ATM transactions?

    THE RENT IS TOO DAMN HIGH!

  • Spoonman.||

    Does this mean that my state-level bank will no longer be content with me using them for entrepot on my money's way to ING? Is my $130 sitting there not good enough for you, bank?

  • Zeb||

    I know not everyone will be able to do this, but most people, I would think, can find an extra $500 at some point to put in the bottom of their checking account and forget about. Then they can maintain the type of account which is free, or even interest bearing (yeah, it's like .10% now, but that's a lot better than a fee). I get fucking tired of people with a new phone, video game systems, cable, internet, a huge TV and whatever else the kids are into these days complaining about being poor. Try saving first, then buying toys.

  • ||

    Try saving first, then buying toys.

    That's unamerican. And probably racist.

  • wef||

    In a world of fractional reserve lending - with taxpayer supported account insurance and a good, old-fashioned banking cartel to cover inadequate reserves - well, why not free checking?

  • ||

    I don't know what your bank's problem is. My bank pays interest on checking. Up to 3% if you meet rather nominal monthly requirements.

  • ||

    Thank god there's somebody out there to protect me from myself. I really am a bastard.

  • ||

    AFAIK, there's two explanations for overdraft fees, both of which are probably correct at some level.

    1) Chronic overdrafters are, on average, less careful shoppers than other bank customers and less profitable. Banks charge them fees because (a) they can and (b) they're not particularly broken up if those customers take their business elsewhere. (This is especially true when banks waive the fees for good customers who complain about overdraft fees).

    2) Chronic overdrafters present extra risk to the bank and less profit. They generally either (a) don't have much money at the bank at all (and probably won't), or (b) are playing games by trying to keep all of their money in interest-bearing vehicles. Some number of overdrafters will never pay the bank without a credit agency getting involved, or even then, which leaves the bank exposed to risk and making minimal profit as a result of that customer. Fees are supposed to sting, so that you either stop overdrafting or move to another bank.

  • Tom Frank||

    So. . . Because of the big mean financial reform, banks are forced to be transparent about their fees and accurately distribute the costs of low balance accounts rather than heap the costs on vulnerable account holders? Yeah, that's horrible. I'm young and not rich, my accounts are low balance and I never overdraft, and I think the new rules are great.

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.

SUBSCRIBE

advertisement