Wednesday, June 2, 2010

How High Risk Accounts Will Find It Difficult to Open a Bank Account

The most dangerous accounts for banks to service are those of customers who regularly overdraw their accounts. These are obviously irresponsible people. They also do not carry high balances that the bank can lend out to earn money on. This means such a customer  might walkaway without paying off a negative balance. As a result, banks charge heavy fees on these high risk accounts. In fact, they force these accounts to take on overdraft protection.

They won't be able to soon.

Under the new Federal Reserve rules that become effective July 1 for new customers and Aug. 15 for existing ones, debit card purchases or ATM transactions that would exceed a customer’s balance and trigger overdraft fees will not be processed unless the customer has agreed in advance by opting in for overdraft protection.

This is going to make a lot of these high risk accounts dangerously unprofitable.Currently, overdraft fees for covering checks, or recurring debits for bill payments, account for 41 percent of overdraft fee revenue for banks, so the new consumer-"friendly" opt-in rules are expected to take a big chunk out of the bottom line at most banks.
What are banks going to do?
According to, Celent, a Boston-based banking industry research and consulting firm, is telling banks to "Fire customers: understand customer profitability and get rid of customers who aren’t profitable."

Bottom line: New government regulations aimed at helping a certain group will actually hurt them big time. These poor schmucks are going to find it awfully hard to find a place to open a bank account.

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