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.