No More Free Checking?

Banks are looking to recap lost revenue as credit and debit card fees change. One perk Americans have long enjoyed is free checking accounts. But some lending institutions are eying checking accounts as a source of revenue that could offset what they will lose. Guest host Tony Cox speaks with personal finance coach Louis Barajas for more on how banks are cracking down on this perk. They also discuss the potential reduction of debit card swipe fees that credit companies charge retailers.

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TONY COX, host:

Next, to matters of personal finance. Free checking accounts may soon be a thing of the past, in part because of some good news for consumers.

On July 1st, automatic overdraft fees will disappear, cutting into the average bank's revenue. With that source gone, banks are looking to make up that lost income and free checking is apparently at the top or very near the top of that list.

Joining us, one of our personal finance experts, Louis Barajas. He is a financial planner and author of the forthcoming book, "My Street Money." Hello, Louis.

Mr. LOUIS BARAJAS (Personal Finance Expert; Author, "My Street Money"): Hi, Tony, how are you?

COX: I'm fine, thank you. Well, let me ask you to tell me how fine I'm going to be given the fact that the banks may be charging me to have a checking account. Should I begin to panic? And are the fees going to be outrageous?

Mr. BARAJAS: Well, I don't think you need to panic. I think what needs to happen is that you need to start looking for alternatives. The problem is with the, you know, with not being able to charge overdraft fees anymore. The banks are going to lose close to $2 billion this year. And so - over the next year, actually, over the next 12 months, beginning July 1st. And they're going to start charging now anywhere from $20 a month to $25 a month for your checking accounts.

Now, that doesn't seem like a lot, but there are a lot of people out there, especially African-Americans and Hispanics who barely have enough money in their checking accounts to even cover some of these fees. Now, there are ways and alternatives to start looking for things not to be to be able to afford these kind of fees.

COX: You know, one of the things that concerns me about this is since we have moved to debit cards, it's really easy to lose track of how much money is in your checking account if you don't stay really close on top of those debits. Add to that the fact that in minority neighborhoods there aren't that many banks to begin with. Is the minority community likely to really be hit much harder as a result of this?

Mr. BARAJAS: Yeah, absolutely. I think so. What's happening is that we're going to need to be really informed. And I think that a lot of the information you can get straight from the banks and you can talk to the people when you walk into the banks now and talk to a manager or go on the Internet. But we're really going to be hit hard.

My personal belief is that, you know, right now the recession has really hit hard the blue collar worker and specifically people of color. And since we don't know sometimes how much money we have in the bank and we don't really have those type of that knowledge of, you know, doing the check we go to check cashing places sometimes and we spend a lot of money there.

So we really have to be consumer aware of what fees we're now going to have to pay since the Federal Reserve has, you know, prohibited these overdraft fees. But at the same time, they're also going to be helping us out because a lot of people do pay a lot of money in overdraft fees.

COX: Congress agreed to cut the swipe fees that credit card companies charge retailers for every debit card transaction. Who ultimately benefits from this? The retailer or the consumer?

Mr. BARAJAS: Well, actually, both. For example, Wal-Mart will save hundreds of millions of dollars by this legislation alone. Last year, the retailers paid close to $20 billion a year. What Wal-Mart said and other major retailers are saying, we're going to pass on those savings to our consumers.

COX: Now, is there we've talked about some of the problems, Louis, the high fees the higher fees, I should say, is there good news though? Talk about the fees that are going away, actually, beginning July 1st.

Mr. BARAJAS: Well, the overdraft fees are going away. And there's a, you know, there's a story about a gentleman who went to go buy a cup of coffee and he used his ATM card and went, you know, I think it was a dollar over and ended up having to pay $40 for his cup of coffee because every time you go into overdraft, they're charging you per transaction $39 or more sometimes.

And so for the average consumer, that's what basically the Federal Reserve wanted to do is to protect them from being charged. And, really, these prohibitively large fees that some people incur.

My niece last week had some kind of recurring account going on, in her checking account, and she had lost her job and forgot about that they were debiting her account from her bank account and she had $146 in overdraft fees for, I think it was, like, $60 of expenses.

So this is something that we're trying to protect the consumer. But at the same time, well, what you want to do is you want to take a look at alternative banking methods to save yourself money. For example, you want to go to, like, for example, online banks like ING Direct or you want to go through credit unions. And some of these organizations, some of these banks are not going to charge you for banking fees, for checking account fees.

COX: Louis Barajas is a personal finance expert and author of the forthcoming book "My Street Money." He joined us from his home in Costa Mesa, California. Louis, thank you.

Mr. BARAJAS: Thank you, Tony.

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