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The free feedom: Why the end of “free checking” is good for consumers

Chris Hoofnagle, adjunct professor of information | June 19, 2010

Oh noes! The Wall Street Journal’s Robin Sidel misreports the end of free checking:

Bank of America Corp. and other banks are preparing new fees on basic banking services as they try to replace revenue lost to regulatory rules, in a push that is expected to spell an end to free checking accounts for many Americans.

Free checking isn’t dead. It never existed!

“Free” comes with hidden fees. And that’s why the new rules ending “free checking” are good for consumers and competition. In the past decade, financial services innovation has focused upon creating new fees that are opaque to consumers. New regulations will require banks to more clearly state the costs of an account.

The recently regulatory shift is simply causing a reallocation of costs associated with checking. Instead of sticking consumers on the backend, banks will now have to stick them on the front end. And that’s they key — fees on the front end are subject to competitive pressure, back end penalty fees are obscure and consumers suffering from optimism bias falsely believe that they’ll never experience them. Consumers will actually benefit from the certainty and fairness of ordinary fees rather than the gotcha model we’ve experienced over the past 10 years.

Comments to “The free feedom: Why the end of “free checking” is good for consumers

  1. I’ve had good experiences with credit unions, even free checking and overdraft without unreasonable fees (nominal interest on overdrafts). And I can take comfort knowing that they don’t contribute to politicians that don’t represent my views.

  2. I lived in India for a few years. Here, there is no such concept as “free checking”. You have to maintain a minimum amount in your bank account, otherwise there is a penalty.

    And everyone knows that India came out of the recession relatively unscathed.

    Unlike the US and Europe 🙁

    • Free is a thought and not reality.

      I’ve been to India too and my account was free. No balance commitment, no charges either. But my banker understood that i usually maintained healthy balance and they made a ton on that. And this offer was not for every one though.

      So while they say its free, I knew it makes money for them.

  3. When I first heard about it years ago I thought it is actually free lol. I used it, I had to. And I’d been charged many times in the same gotcha model. The new rule will at least be more transparent and won’t be misleading to the consumers.

  4. Nothing in life comes for free. There are two sides to the coin, someone giving and someone taking. Most people are happy to pay for services they use, as long as the fee being charged is fair and reasonable, for banks or any other service provider.

  5. I’m aghast that millions of Americans have been enjoying “free” services that have actually been paid by the less fortunate. You can bet that these are the same Americans who want an end to government “entitlements” (except their own of course). I only have one response to these freeloaders who have been getting a free ticket from a very unfair, punitive, regressive business model:”PAY FOR THE SERVICES YOU RECEIVE AND STOP FREELOADING ON THE LESS FORTUNATE.” (upper-case language intentional)

  6. If people would balance their checkbooks like they’re supposed to and actually read the disclosure statement when opening the checking account and read any changes made to it through the notifications on the statement, people woulnd’t have to worry about getting hit with overdraft fees except in emergencies. I’ve only overdrafted twice, and that was back when I was going to college, and I was able to get my checking account back into positive territory easily.

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