Design an overdraft fee strategy before Washington
Because it makes for great political snippets, lawmakers are tossing around the idea of re-policing financial institutions’ prices and the fees they charge for overdrafts and insufficient funds (NSF) fees. While the practices of some banks and credit unions to maximize their fee revenue through transaction display strategies are reprehensible, the fact that legislators set prices usually doesn’t turn out well either. An article in Fortune Noted:
Although more than a dozen major banks have recently reduced or eliminated overdraft fees altogether, Democratic lawmakers continue to push for legislation that would limit the practice nationwide.
On Tuesday, Rep. Carolyn Maloney (D-NY) and Senators Cory Booker (D-NJ) and Elizabeth Warren (D-MA) renewed efforts to limit overdraft fees through federal legislation. The bills seek to eliminate the insufficient funds (NSF) fee and limit the number of overdraft fees charged, while stipulating that these fees must be “reasonable”.
“Billions of dollars are being won on the backs of low-income families struggling to get by,” Senator Booker said Tuesday at a press conference. “And so we now have to change that. We have work.”
One of the unintended consequences of federal price controls has been pointed out:
…while some major banks have implemented [fee] changes, there are critics who argue that restricting overdraft fees could create more challenges than it solves for consumers. Overdraft protection provides bank customers with a viable source of short-term cashand without it, some consumers may be forced to use alternatives like payday loans more often.
Mercator Advisory Group reflected on this in a recent report: Overdraft charges at an inflection point, not a cliff.
Preview by Sarah CaveDirector, Debit and Alternative Products Advisory Services at Mercator Advisory Group