Checking Accounts May Be Affected by New Legislation

Will Checking Account Changes Be Part of New Financial Regulations?

It's been one year since the financial system imploded upon itself, and politicians are busier than ever trying to figure out how to cut, loosen, or tighten the myriad ties that now bind government to banks. President Obama visited Wall Street this week to discuss a brave new era of financial regulation.

One financial tool that may be affected by any new legislation is your checking account.

Checking Accounts and Consumer Protection

The first checking account-related item of business for lawmakers looking to make changes to bank regulations pertains to the glaring PR problems that have arisen as a result of the drastic increase in overdraft fees charged by banks. As consumers rely more upon debit cards linked to their checking accounts, overdraft fees have become much more common and may approach $40 billion for 2009.

Banks now make more money off overdraft fees on checking accounts than they do on penalty fees related to credit cards, long a major profit center for banks.

Meanwhile, the public has also grown sick and tired of "free" checking accounts that are not really free, and other perceived "transparency issues."

Expect any new bank legislation to contain additional consumer protection measures related to checking accounts, savings accounts, and maybe even money market accounts.

"Bank Holding Companies" Means What Again?

Another troublesome matter that may be addressed by new financial regulations is the fact that many banks, these days, are not banks in the traditional sense of the word, as in they take deposits from customers and make loans to customers and offer checking accounts.

On the contrary, many "bank holding companies" today are not banks at all. American Express, for instance, became a bank holding company in 2008 in order to receive bailout funds under the TARP plan. The process of becoming a bank holding company, for Amex, entails severe reporting and disclosure requirements, but it also confers benefits in that the government usually protects banks more than other financial companies.

Should these ambiguous relationships continue? Should bank holding companies that are not banks be allowed to offer checking accounts and other services directly aimed at consumers?

Congress will debate such questions in the coming months.

Overdraft Fees Pay for Free Checking Accounts

With banks struggling to deal with crushing levels of bad loans both in the commercial real estate and consumer sectors, the smart money is betting that any new financial regulation that threatens bank profitability will be countered by the banks taking action to cover those costs in other ways.

If financial legislation is written to protect the unwise checking account user from overdrafting his account, banks could just raise checking account fees across the board to cover lost revenues from decreased overdraft fees. Currently, 93 percent of overdraft fees are attributable to 14 percent of customers.

Today, in other words, people who act irresponsibly with their checking account are essentially paying for responsible people to have free checking accounts. This arrangement may not last for much longer.

Source:

Lisa Schmeiser • hop around for the best cheap checking accounts • Sep 09, 2009 • SFGate: http://www.sfgate.com/cgi-bin/blogs/dollarsandsense/detail?entry_id=47227&tsp=1

Ron Lieber and Andrew Martin • Overspending on Debit Cards Is a Boon for Banks • Sep 08, 2009 • The New York Times: http://www.nytimes.com/2009/09/09/your-money/credit-and-debit-cards/09debit.html?_r=2&pagewanted=all