Last summer the new banking regulation caused a great concern among American financial institutions.  Banks will have to change how they conduct their day to day operations with regards to middle to low income customers.  The new regulations will cause banks to lose Billions of dollars in fee income and hopefully Americans will be able to spend that same Billion dollars to boost the economy.  However, there may be some unintended consequences to bank customers as well, I will discuss later.

Some of the highlights of the regulation are banks cannot charge Overdraft (OD) fees to customers unless they opt-in;  the number of OD charges will be limited and credit card fees will have to be more transparent.  Here is an example; a $5 cup of Starbucks could cost you $40 before the new regulation.  Now, if you do not opt-in your debit card will be declined at the counter if there is not enough money to pay for the item.  Good or bad for the consumer it is not my place to say, but I will say this; bank customers will have to pay attention to their balances and transactions to avoid being declined.   With that being said, banks must recover the fee income so their CEO’s can continue to earn those $10 – $20 million dollar salaries (Wells Fargo CEO received $19 million in 2010).  Here are a few ways the banks will plan to recover fee income:

    • Eliminate free checking – The days of free checking accounts are going to disappear, banks are slowly phasing these types of accounts out of their portfolio by 2014 no “free accounts” will exist.  The new customers will not have the option of a free checking account and the existing customers will be grandfathered and then eventually phased out.  For example, Wells Fargo will convert ALL grandfathered free checking accounts by May 2011.  On the flip side, most good bankers will tell you that all their accounts are free.
    • Raise ATM fees – Currently, a person can expect to pay somewhere from $2 to $6 per foreign ATM withdrawal.  This fee includes fees from both financial institutions.  Typically, your bank will charge you $1 to 3 dollars for using a foreign ATM and the foreign ATM will charge you an additional $1 to $3 dollars for the withdrawal.  As banks continue to recover loss revenues you will see these charges double; as a bank customer you will be charged a minimum of $5 per foreign ATM withdrawal and probably somewhere around $8 – $10 per transaction.  WOW!
    • Debit card use fee – Congress is in the process of placing a limit to what banks can charge retailers, currently retailers pay banks an average of 44 cents per debit card swipe.  98 million swipes per day at 44 cents equals $16 billion dollars banks stand to lose. Where are they going to recoup those funds, the debit card user who else!  I have heard that if this legislation passes banks will consider charging you a fee every time you use your debit card ($.10 to $.25) and add a monthly or annual service charge for just carrying a debit card.

        The take away from this information, know the bank rules and play within them.  Cash may become king again, but not without a cost!