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Thread: The unintended consequence of over draft fee reform on checking accounts

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    Featured Member Vamp's Avatar
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    Duh The unintended consequence of over draft fee reform on checking accounts

    I am taking a page from Melonie by pointing out an unintended consequence.

    This past summer there have been changes in the regulation of checking accounts. Banks are now regulated in how they can charge over draft fees. Each bank is making different changes. Along with this is debit card reform ie if the funds are not available in your account at the time of purchase your debit card will be declined.

    The unintended consequence is that banks are now bouncing more checks that take a checking account negative. This isnt being reported anywhere yet. But I am seeing it happen at work. In the past most checks were covered because of the fee income that was generated. Now if a check takes the account negative more then fifty dollars the check is bounced.

    These changes will also have an impact on stripping in general. The clients that bleed their accounts dry at the atm getting lap dances will be declined alot sooner then they would of been in the past.

    The impact on business as a whole have not been felt yet. I think within a year the dynamo effect of these changes will have a huge impact. Many people have relied on the fact they can over draw their accounts to cover costs. They didnt need good credit to qualify. They just had to cover the fees.

    Each bank is dealing with these regulations differently. Please check with your bank to find out how these changes will effect you.
    Nature knows no indecencies; man invents them. ~ Mark Twain


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    Default Re: The unintended consequence of over draft fee reform on checking accounts

    ^^^ indeed, these changes will also have other impacts

    - in order to avoid the complications and costs of 'bouncing' a check with a retailer, it will now be necessary for the account holder ( rather than the bank ) to keep sufficient extra funds in the account to cover the 'float' ... i.e. differences in actual processing date between deposits being credited, checks being debited etc.

    - many banks and virtually all retailers will ( again ) begin imposing 'bounced check fees' as a revenue enhancer

    - many credit scores will take an added 'pounding' as the result of a simple 'screw-up' resulting in bounced checks being reported to Experian, TransUnion etc.

    - in short order, retailers will again be filing charges in small claims courts in order to recover 'bounced check' losses from customers who run their balance negative and have no way to immediately cover the shortfall

    - if a person has a checking account and credit card account at the same 'mainstream' bank, a bounced check may trigger 'universal default' ... i.e. the potential imposition of high 'penalty' interest rates on the credit card account ( as well as dropping the card's credit limit ).

    There is no such thing as a free lunch. While FinReg has limited the ability of 'mainstream' banks to impose certain fees, it will also prompt them to start imposing different fees ( by one means or another )

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    Featured Member Vamp's Avatar
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    Default Re: The unintended consequence of over draft fee reform on checking accounts

    Quote Originally Posted by Melonie View Post
    ^^^ indeed, these changes will also have other impacts

    - in order to avoid the complications and costs of 'bouncing' a check with a retailer, it will now be necessary for the account holder ( rather than the bank ) to keep sufficient extra funds in the account to cover the 'float' ... i.e. differences in actual processing date between deposits being credited, checks being debited etc.)
    OOooo another unintended consequence .... this processing time is getting longer. Because more checks are being bounced that are writen ... the checks you deposit are more likely to go on an extended hold.

    Quote Originally Posted by Melonie View Post
    ^^^ - many banks and virtually all retailers will ( again ) begin imposing 'bounced check fees' as a revenue enhancer

    - many credit scores will take an added 'pounding' as the result of a simple 'screw-up' resulting in bounced checks being reported to Experian, TransUnion etc.)
    The only time a bounced check hits a credit report is when a checking account is closed because of a negative balence. But lets say you write a check to a grocery store. That check bounces. The grocery store reports you to chexsystems. With a record on chexsystems you can not write a check anywhere and you can not open a bank account even if you pay all the fees and the negative amount. All the major retailers now use electronic check processing which elimanates this issue most of the time.

    Quote Originally Posted by Melonie View Post
    ^^^ - in short order, retailers will again be filing charges in small claims courts in order to recover 'bounced check' losses from customers who run their balance negative and have no way to immediately cover the shortfall

    - if a person has a checking account and credit card account at the same 'mainstream' bank, a bounced check may trigger 'universal default' ... i.e. the potential imposition of high 'penalty' interest rates on the credit card account ( as well as dropping the card's credit limit ).

    There is no such thing as a free lunch. While FinReg has limited the ability of 'mainstream' banks to impose certain fees, it will also prompt them to start imposing different fees ( by one means or another )
    The new law limits universal default rate hikes. Here is a break down ....


    Limited universal default: "Universal default," the practice of raising interest rates on customers based on their payment records with other unrelated credit issuers (such as utility companies and other creditors), has ended for existing credit card balances. Card issuers are still allowed to use universal default on future credit card balances if they give at least 45 days' advance notice of the change.

    http://www.creditcards.com/credit-ca...-mean-6000.php
    Nature knows no indecencies; man invents them. ~ Mark Twain


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    Default Re: The unintended consequence of over draft fee reform on checking accounts

    Limited universal default: "Universal default," the practice of raising interest rates on customers based on their payment records with other unrelated credit issuers (such as utility companies and other creditors), has ended for existing credit card balances. Card issuers are still allowed to use universal default on future credit card balances if they give at least 45 days' advance notice of the change.
    true - but you missed the 'loophole' that this only applies to UNRELATED credit issuers. If the checking account and credit card account are both with the same financial institution the two are not unrelated ... thus the bounced check triggering a high credit card default interest rate can be immediate ! This can obviously be avoided if one's checking account and credit card account are located at two completely different financial institutions. But in a good number of situations, people elect to consolidate all of their accounts with a single financial institution. And actually, the high credit card default interest rate may still occur even if the two accounts are in different banks ... but after 45 days notice has been observed.

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