Banks can afford to offer free checking accounts with no minimum balance, to responsible people, only because they can charge overdraft fees to irresponsible people. But Congress has now prohibited many overdraft fees, which will result in many banks eliminating free checking, and also require responsible people to subsidize irresponsible people. This is chronicled in a Wall Street Journal news story entitled “End Is Seen to Free Checking.”
As the Journal notes, “Bank of America Corp. and other banks are preparing new fees on basic banking services as they try to replace revenue lost to regulatory rules, in a push that is expected to spell an end to free checking accounts for many Americans. Free checking accounts, which have been widely available for more than a decade, have been a boon to middle-class consumers and attracted low-income customers to the banking system for the first time. Customers will likely be required to pay new monthly maintenance fees on the most basic accounts that don’t generate a lot of activity. To avoid a fee, customers will have to maintain certain account balances or frequently use other banking services, such as credit and debit cards, automated teller machines and online accounts. ‘If you put $1,000 in a checking account and don’t do anything with it, it will be hard to get that for free,’” thanks to the new rules.
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This is becoming a pattern for Congress, passing laws forcing responsible people to subsidize irresponsible people. It did the same thing with the bailouts, and with the CARD Act of 2009, which effectively forced responsible credit cardholders to subsidize irresponsible credit cardholders. That credit card law, which limited what banks could charge irresponsible credit holders, led to the return of annual fees on some credit cards, and wiped out many cash-back and rewards programs.
The elimination of free checking thanks to Congress’s unwise restrictions on overdraft fees will harm low-income people by driving them back to check-cashing stores that charge them money to cash every check. “The offers of free checking without any minimum balance requirements attracted a new wave of low-income customers, who previously went to check-cashing stores.”