New Rules Could Increase Bank Fees

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Two actions in Congress Monday could put further strains on the profitability of banks. In response to these moves, some banks could very well add new fees to checking accounts to make up for this lost revenue.

Congress is much closer to passing new financial regulations which could limit the revenue that banks can make on debit cards. On Monday, members of the House and Senate reached an agreement to include debit card fee cuts in the financial reform bill, despite intense lobbying from the financial industry. The bill reduces the limits on fees Visa and MasterCard would have faced under legislation that passed the Senate last month.

This legislation only applies to debit cards, not traditional credit cards.

It also allows merchants to offer discounts for use of cash instead of debit, and to set up to a $10 minimum for card transactions.

In arguing against the legislation, banks warned that they will be forced to raise other types of fees and eliminate rewards on debit cards to make up for a decrease in revenue from the lower interchange fee.

Also on Monday, House Democrats agreed to put the new financial consumer watchdog agency in the Federal Reserve. It will be an independent unit operating within the Fed. The compromise moved Wall Street reform legislation closer to enacting financial reform into law. The targeted date is before July 4.

The consumer watchdog agency would have its own budget, staffing and rule-making power. Supporters say that the agency will benefit consumers by reducing the cost of credit; that an increase in transparency and clarity would decrease penalty fees and surprise charges; and easy-to-read credit-card agreements would make it easier to select the cheapest or least risky card.

Banks are already preparing new fees on basic banking services as they try to replace revenue lost to recent regulatory rules. Starting July 1, Wells Fargo is ending its free checking account. Bank of America is testing account fees and options that will be added later this year. Other banks could join in.

Consumers have enjoyed years of free checking accounts. Fees will likely be added to the most basic checking accounts that don’t generate a lot of activity or money. The fee may be waived for customers with larger, active accounts or who use multiple services.

Banks have already lost billions of dollars in fees and revenue because of the CARD Act and overhauling the overdraft fee. The new regulations will also increase the losses. They have to make changes to increase their revenue.

“During this season of regulations, we have learned that banks and credit card issuers raise rates and fees in other areas to make up for any lost revenue. They have done this in the past and they will probably do it again.

Regulations may be needed, but they are not free. Banks respond quickly when their income is restricted in one area,” says Bill Hardekopf, CEO of and author of The Credit Card Guidebook. “Unfortunately, the first victims of these new fees will probably be the people with a basic checking account who need every dollar they make.”

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