New Debit Card, Credit Card Laws Will Save Consumers $5 Billion This Year

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Holy moly! Thanks to restrictions put into place in 2009 and 2010 that limit how and when fees can be assessed on debit and credit card accounts, banks are expecting to collect $5 billion less in fees this year. For consumers, this should mean money in the bank—and what do you know, the money is actually yours, not the banks’.

The $5 billion estimate comes from USA Today, which takes the data directly from the banks and credit card companies themselves:

Of the 10 institutions with the largest amount of credit card receivables, seven gave estimates about the credit card law’s impact. In all, the issuers —Citigroup, Bank of America, JPMorgan Chase, Wells Fargo, U.S. Bancorp, HSBC North America and Barclays Group US — will forgo at least $2.5 billion to $3.1 billion in fees just in 2010. Also, seven of the top 10 depositary institutions expect to take a combined $2.4 to $2.6 billion hit under the new overdraft rules and banks’ voluntary policy changes.

These numbers indicate that consumers will be paying less money for debit card overdrafts, late charges on credit cards, and other fees that have been changed by new federal laws. But does this mean that you’ll be paying less in fees overall? Not necessarily.

Banks really like making money (duh), and when one means of making money disappears, counter-offensives are launched swiftly, early, and often. Well before the new restrictions on fees went into effect, the credit card and debit card issuers were trying to figure out ways to make up anticipated losses, in the same way that health insurance companies are actively trying to maximize profits during the periods before and after health reform becomes fully actualized.

The reforms on credit card and debit card fees have helped consumers, and should continue to do so, but it’s ridiculous to say that the laws have magically made fees go away. Certainly not all of them. In some ways, the situation is one in which, simply put, new fees have replaced the old ones. And some of the new fees are quite absurd: For example, the credit card “inactivity fee,” which basically means you’re charged for NOT buying stuff. More typically, the reforms have brought with them other basic but no less annoying unintended consequences, including more fees (annual ones in particular), higher interest rates, and less credit period.

The overdraft proposition is one that should be monitored very carefully. Last year, banks pulled in something like $40 billion in overdraft charges, and that’s a gravy train that the financial institutions aren’t simply going to walk away from without a fight. The new changes will require customers to opt into overdraft protection if they want it. Doing so will allow you to use your debit card even if you don’t have enough money in your account to cover the tab—and for the service of providing such “protection,” the customer is charged about $35 a pop. The problem is that lots of customers do this unknowingly and get charged hundreds of dollars in fees for buying coffees, lunch, or other items that would have cost them a tiny fraction of the fees they’ll soon be paying.

The bigger problem is that, until now, most banks automatically signed up customers with overdraft protection without every asking anyone. And as Barney Frank put it, banks shouldn’t be doing people such “favors” without asking them. So the significant change is that now, customers will have to be asked if they want overdraft protection—and most don’t. In one survey, 80% of debit card holders said they’d opt out of such “protection.”

Anticipating a mass exodus of customers leaving overdraft protection behind, the banks have started campaigns to scare customers into accepting $35 fees. Then Bank of America surprised everyone by saying that its customers won’t be offered overdraft protection at all.

Like I said, everyone needs to watch what’s going on with this overdraft business, because it—and fees in general—are moving targets. Battling the banks and credit card companies is like Whack-A-Mole, and when one fee disappears, everyone should be on the lookout for new one(s) to pop up. Overdraft fees may be fading, so it wouldn’t be shocking to see, say, a large-scale return of checking account fees.

Hold your wallet. Be on the watch, ideally with a club in hand ready to whack new fees down. Don’t toss those letters arriving in the mail from your bank and credit card issuers without reading them carefully. Your terms can and likely will be changing, and not necessarily for the better.

Related:
Should ATM Fees Be Capped at 50¢?

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