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Navigating the Banking Environment

In the second quarter 2011, one hundred of the world’s largest financial companies spent $1.6 million to lobby the federal government concerning the new banking rules that came into effect under the Frank-Dodd Act. The debit and overdraft fee reduction is the part that will have the greatest impact on consumers. The intent of the Frank-Dodd Act, is to protect consumers, so that they are not overcharged and so that banks are not incentivized by possible fee income.

Unfortunately, some banks are dependent on fee income, especially when credit is tight and unemployment remains high. Therefore, several institutions have found “loop holes” that still enable them to over-charge consumers, if not in the amount of the individual overdraft fees, then in the number of overdraft fees charged. The Consumer Federation of America found only five banks, (Capital One, Citibank, HSBC, Regions Bank, and Wells Fargo), that do not continuously charge the consumer subsequent overdraft fees for a single outstanding overdraft. Furthermore, several banks that provide an “opt in” debit card overdraft protection plan charge upwards of thirty-five dollars for each overdraft, when the typical overdraft charge is twenty dollars per item.

Specifically concerning debit card transactions, The Federal Reserve implemented a cap on the transaction fees that banks can charge retailers. Previously, the per transaction fee averaged fourty-four cents. Currently, the maximum allowable is twenty-one cents. This reduction will impact consumers in several manners.

We are out of the economic slump. Banks have had to concede on many points, including increasing fees. It seems they understand that we are all in the same boat – without a penny to spare. Yet, if you are open to increased debt and financial vulnerability they are open to selling you your poison. Biting Off Just Enough

First, banks will lose fee income and will have to find an alternative method to reduce the impact to their profitability. They can attempt internal cost reductions. However, due to the recessionary period, many institutions have already explored and implemented this option. Therefore, they will most likely pass this cost onto the consumer. Wells Fargo proposes a $3.00 monthly convenience fee. Wells Fargo, JP Morgan Chase, and SunTrust eliminated their debit rewards plan while other banks ceased to offer a free checking account. Second, smaller institutions are exempted from the reduced debit card transaction fee. Therefore, bankers of smaller exempted institutions may not incur extra debit card charges. However, at the point-of service retailers may be incentivized to encourage consumers to use cards that charge them less, e.g. those of larger institutions.

The best defense is a strong offense. As a consumer, remain informed about your banking institution’s changes and its potential impact on your finances. In other words, read the disclosures your bank sends to you and ask questions if you are not certain about the potential impact. Create a strategy that is most beneficial to you. If you are an avid debit card user, then you may want to find an institution that does not plan to charge fees for debit card use. If you tend to incur overdrafts intermittedly, bank with an institution that will not aggravate the situation with higher fees and secondary charges. If your bank took away your free checking account find a bank that still offers free checking. The best thing about America is that you are free to roam about. Do what is best for you. For anyone, I would suggest use of Mint, which is a free software tool that helps you budget and manage your money. Also, consider reducing your debt by consulting a reputable source, individual, or organization, (try credit.com as a starting point).