Last month, the largest consumer bank in the US (Chase) announced that they “may” start charging customers a monthly fee for having a checking account with them. This was a threat based on the news from the US Government that the government is looking to pass regulations aimed at protecting consumers by capping the amount of overdraft and late fees that US banks can charge.
Currently, most banks charge overdraft fees that can range from $15 to $35 per overdraft. Chase currently charges $34 per overdraft, up to 3 per day. Meaning a person who accidentally overdrafts their checking account could pay $102 per day in overdraft fees.
So who would this impact? Anyone who overdrafts their checking account, but primarily this would impact lower income and less wealthy individuals the most. Why? Because they’re the consumers most likely to be currently paying outrageous amounts of overdraft fees. If Chase decides to charge $5 a month for a checking account, anyone who previously was getting hit with 2 or more overdrafts in a year would come out ahead. You might not realize this, but there are people who pay hundreds of dollars a year in overdraft fees.
Who else is impacted by this? Well, literally anyone who owns a Chase account. Depending on if Chase sets parameters, such as account minimums, to void the monthly fee, a lot of Chase consumers will begin paying for their checking account.
Why don’t those customers switch banks? They definitely can, but think about your main checking account: how many payments and auto payments are tied to it? House, rent, car, insurance, life insurance, credit card(s), subscriptions, etc. Changing your bank account to a different bank can be… burdensome.
Will this actually happen? It depends. There’s a good chance the government’s attempt will get contested by banks and the legal fight would wind up all the way in the Supreme Court. Let’s say the government gets the stricter regulations passed and Chase follows through with their threat of monthly fees for all accounts. All it will take is for Chase to show one fiscal quarter of data “proving” their fees raised revenue for other big banks (Bank of America, Wells Fargo, Citi, PNC, etc.) to follow suit.
What is stopping other banks from following Chase? The only hope is for there to be REAL blowback by consumers on a mass scale. You’d need millions of Americans to jump ship and leave Chase for a direct competitor. That takes coordination, effort, and a lot of work by consumers to switch all their payables and accounts over that were previously linked to their Chase account. Switched over? To where? … To a direct competitor.
So how should consumers prepare for this? Like almost every topic I talk about, you need to have all your financial accounts inventoried. That means you need a file or notebook with all your (and your partners’) accounts listed out. Know your usernames, passwords, and list out what each account is used for and how it’s paid. And you should be checking in (pun intended) on each account monthly to make sure you know what each inflow and outflow was for. Most importantly, I recommend that every individual or household in America have a second bank account at separate banks. For multiple reasons: what happens if one of your banks ever gets hacked? Or you lose your debit card? Or what if one of your banks decides it wants to start charging you a fee every single month for a service that all other banks offer for free???
When you have a second bank you have the flexibility to change which bank account is your “main” account. Banks are no longer loyal to consumers, why should you be loyal back?
Summary Checklist:
Tighter regulations capping overdraft fees miiiight get passed
IF that happens, banks will likely respond by enacting new fees to recoup those lost fees
Or they’ll reduce services in other areas
The only way to fight back is to leave that bank immediately once new fees are enacted
Be prepared; have another account already opened at another bank
Last but not least, “Tom, the title of this article is why should I want to pay for a checking account??? But you’re saying fees are bad.” Yahhhh here’s the real hot take: if you currently experience over drafting your account more than 2 times per year, then you should want to pay a monthly fee IF it results in less overall fees paid to your bank. Seriously. There are millions of people in the world paying hundreds of dollars a year in overdraft fees. If you haven’t paid an overdraft fee this year, then no you don’t want a monthly fee. Sorry Chase!
Monthly fees are likely not coming for months. Banks will fight these new proposed regulations all the way to the Supreme Court. But keep this article in the back of your mind because I plan on expanding on it and going into much more depth if/when those regulations get passed. If you have any questions, I’m an open book and would love to hear from you! And as always, you can book a free 30-minute call with me to test the waters and see if you’d even want to work with a CFP professional.
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