Disciplined Customers Bad for Banks

June 2, 2010 by  
Filed under Money and Behavior

If you have a disciplined financial life, you don’t bounce checks or overdraw your account at the ATM. Sadly, banks don’t like you. You may find yourself hit with account maintenance fees or fired as a customer altogether.

The new bank overdraft rules that become effective this summer are a severe threat to bank revenue from retail customers. Today, a bank may automatically allow a customer to overdraw his or her account, and then impose a fee for doing so. The customer may expect that a debit card transaction against an insufficient balance will be refused but banks prefer to allow the transaction and impose a fee. These fees account for one-half of bank revenue from “free” checking accounts. 41% of these overdraft fees arise from debit card transactions. The bank may let you withdraw $50 that you don’t have while charging you $39 for the privilege.

Under the new rules, banks will have to refuse a transaction against insufficient funds and not impose a fee unless the customer “opts in” to automatic overdraft protection.

The result will be reduced revenue from overdraft fees. Banks will attempt to compensate by making all of us pay account maintenance fees on checking accounts that used to be free.

This is one reason why we are switching to a rewards checking account. The bank will make money on our account from our debit card transactions (ten minimum per month). I’m fine with that, particularly with the 3.78% interest rate.

I’m certainly not recommending that anyone “opt-in” to automatic overdraft protection. That is one safety net that makes zero sense. Instead, find a bank and account that values your entire banking relationship. If the bank wants to reward your disciplined financial behavior with more fees, find another bank.

To read more, here is a source:  Consultant tells banks: “Fire” unprofitable clients who dont pay fees.

Feed Mr. ToughMoneyLove

FREE UPDATES: If you enjoyed this, please subscribe to receive the newest hard truth from Mr. ToughMoneyLove automatically by RSS feed (what is RSS?) or by spam-free Email.

  • Banner


2 Responses to “Disciplined Customers Bad for Banks”
  1. Jack Clark says:

    Never going to happen.

    Banks are never going to do this in any kind of widespread way.

    There may be a few that try this, but in any kind of city or town where there is banking competition from regional & community banks or credit unions any bank that does this will get waffled by competitors who don’t.

    In my local area of PA there are still giant billboards from credit unions like People First and from smaller local banks like Embassy Bank that are still going after the big boys like Wachovia and PNC.

    And they in turn the big boys are still offering most of the free-bees that they were offering four or five years ago.

    I think this will be based on whether the bank has enough competition. If they don’t then I’m sure they will try to “fire” their customers.

    But if they do then doing this would be stupid.
    It would just create a mass exodus to competitors.

  2. MasterPo says:

    I have an overdraft line of credit already. I rarely use it but it’s there if needed.

Speak Your Mind

Please leave a comment and tell us your version of the hard truth...

You must be logged in to post a comment.