Wednesday, July 07, 2010

Banks ditch courtesy overdrafts, but consider what to do about low-balance checking account customers

Liz Pulliam Weston has a provocative article on MSN Money, “Is your bank about to fire you?”, link here

She explains how the disingenuous “courtesy overdrafts” work at many banks (not including Bank of America) that dupes poorer consumers into spending more than they have. Since the new financial reform laws crack down on this practice, there have been rumors that regular customers will be charged large monthly fees, because checking accounts generally are not profitable until there are large balances or many overdrafts. There is also a concern that low-balance customers will be dropped from many banks.

The FDIC wants banks to adopt a more efficient model for low balance checking accounts, including the use of debit cards rather than paper checks (which seem to incur a lot of labor costs for banks), very low fees, and regular FDIC insurance.

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