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With Congress threatening to create new consumer protection agencies to protect the public from customer-unfriendly banking practices, the Federal Reserve stepped in today to prove it is still relevant and involved with banking regulation. The Fed announced that as of July 1, 2010 for new bank accounts or August 15, 2010 for existing accounts, banks must have received permission from their customers before charging overdraft fees.

Overdraft protection will only be an opt-in service. There are some exemptions to this new rule, however. The only type of overdraft protection requiring customers’ consent is the type in which the bank covers the overdraft to cover the debit. If your overdrafts are covered by a linked savings account or credit card, you could still be charged a fee. Usually these fees are lower, such as $5 rather than $35.

Also, only overdrafts caused by transactions with debit cards or ATM cards qualify for opt-in only. If a customer writes a check that causes an overdraft when cashed, the bank is still free to charge an overdraft fee without the account holder’s permission. Banks still argue this overdraft coverage is a benefit that customers want and don’t mind paying the fee. Customers would rather have their rent or utility check go through if it costs $35 to cover the overdraft than to have their check bounce.

According to a recent survey by ING Direct, 24 percent of Americans are angry about overdraft fees. Are you angry? I can’t bring myself to get worked up about these fees, myself; avoiding them is pretty simple:

  • Don’t let your bank account get anywhere close to a zero balance. Always keep a buffer in any account you use for making payments. If you get close to zero, you are much more likely to fall into a bank’s trap, including multiple overdraft fees on the same day.
  • Don’t count on money you deposit into your account actually being there until you confirm that the cash is available. Sometimes check deposits take more than a week to clear, and banks can still pull back the funds for weeks after the deposit if there is a problem.
  • Here are ten tips for avoiding overdraft fees.

Banks will earn almost $40 billion from overdraft fees this year, and you can be sure the industry doesn’t want to see that practically free revenue disappear. When one door closes, another opens. Banks will innovate and find news ways to collect fees. We already see Bank of America planning to charge annual fees to credit card users who pay their balance in full every month. I expect the news will be full of stories about new fees for the next year.

Photo credit: smith
Fed: banks need customer consent on overdraft fees, Associated Press, November 12, 2009

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Here in the Untied States, ING Direct, a banking arm of the large financial company ING Group from the Netherlands, offers more than just high-yield online savings accounts. The bank also offers investments and mortgages, and some of the latter may have been too risky, like those sold and packaged into securities by domestic banks.

ING Group received a taxpayer bailout of €10 billion ($14.9 billion) and the European Commission is forcing the financial company to restructure in order to repay this loan. Part of this deal involves taking ING’s insurance companies public and selling the United States’ ING Direct by 2013.

The effect of this sale remains to be seen. Some time between today and the end of 2013, ING Direct will be owned by another company. This bank was one of the first to operate without any brick-and-mortar branches and the first to be an unmitigated success. When I first started paying attention to my finances at the start of this decade, the recommendations for ING Direct flowed from every information channel. With the highest interest rates in the savings account business, unusually capable customer service, and a slick and functional website, the bank was a favorite among the die-hard personal finance fans at the Motley Fool discussion boards.

More recently, ING Direct has moved from excellent to very good. I still recommend this bank to people who want a hassle-free experience, but their rates are no longer as competitive and their electronic checking account is not the best in class. For those with more money to put in savings, those who would benefit from a higher interest rate, I usually offer additional options.

ING Direct’s corporate message in response to those customers concerned about recent news of the impending sale is that your money is safe. I don’t think safety is the real concern. Accounts at the bank are insured by the FDIC, so even if the bank fails safety isn’t a problem. These are the questions you should have right now:

  • Who will purchase the bank and will ING Direct’s core values change?
  • If the core values change, will they be for the better (more competitive interest rates, for example) or for the worse (scaled back operations and customer service, for example)?
  • What new account fees will be introduced?
  • ING Direct employs about 1,200 in Delaware and another thousand more across the country. Will they have jobs and for how long?

These questions will not be answered for some time.

I do not see the announcement of this sale as a reason to move money out of ING Direct now. I will be watching developments closely, however. With the bulk of my savings in ING Direct, I am very sensitive to the fact that they do not offer the highest interest rate available. For years, the bank has counted on customers like me: those who first deposited when the interest rates were high and competitive and who have stayed around as other banks consistently offer higher rates. But I do not owe my loyalty to a company and will be quick to shop around if I am no longer getting a good deal considering cost, return, and service.

Photo credit: diaper
ING to sell Delaware-based bank in [sic] 2013, Eric Ruth, The News Journal, October 27, 2009
Post-Bailout Blues as Europe Orders ING Group to Sell 2 Units, Eric Dash, New York Times, October 26, 2009

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As of October 26, 2009, over 100 banks have failed this year. Most of these are smaller regional banks who, in order to compete with larger banks, offered risky loans and are now facing customer defaults. Larger banks were offered government bailouts to prevent failure, but these smaller banks whose failures are not seen as major risks to the economy are left without taxpayer assistance.

The FDIC covers savings accounts, checking accounts, and certificates of deposit to ensure that customers hardly notice when one of these smaller banks fail. As long as a bank is a member of FDIC, and most are, customers should be confident that even if a bank fails, they will be able to withdraw their deposits within the coverage limit. Predicting the increase of bank failures this year, the FDIC decided over a year ago to increase its insurance limits. In 2008, only 26 banks failed compared to 106 so far this year.

Although there is often worry in the press that FDIC is underfunded and might run out of money, that situation is highly unlikely. The FDIC is requiring banks to start paying their FDIC premiums which have largely been ignored for decades to increase its available funds. The FDIC also has an extensive line of credit with the Treasury, and because Congress will always vote to make sure the FDIC will be able to cover necessary expenses, it is in effect a limitless credit line.

Here is a full list of banks that have failed since 2000. I will update this list as necessary.

Bank Location Failed Date
Riverview Community Bank Otsego, MN October 23, 2009
Partners Bank Naples, FL October 23, 2009
Hillcrest Bank Florida Naples, FL October 23, 2009
Flagship National Bank Bradenton, FL October 23, 2009
First DuPage Bank Westmont, IL October 23, 2009
Bank of Elmwood Racine, WI October 23, 2009
American United Bank Lawrenceville, GA October 23, 2009
San Joaquin Bank Bakersfield, CA October 16, 2009
Warren Bank Warren, MI October 2, 2009
Southern Colorado National Bank Pueblo, CO October 2, 2009
Jennings State Bank Spring Grove, MN October 2, 2009
Georgian Bank Atlanta, GA September 25, 2009
Irwin Union Bank, F.S.B. Louisville, KY September 18, 2009
Irwin Union Bank and Trust Company Columbus, IN September 18, 2009
Venture Bank Lacey, WA September 11, 2009
Corus Bank, N.A. Chicago, IL September 11, 2009
Brickwell Community Bank Woodbury, MN September 11, 2009
Vantus Bank Sioux City, IA September 4, 2009
Platinum Community Bank Rolling Meadows, IL September 4, 2009
InBank Oak Forest, IL September 4, 2009
First State Bank Flagstaff, AZ September 4, 2009
First Bank of Kansas City Kansas City, MO September 4, 2009
Mainstreet Bank Forest Lake, MN August 28, 2009
Bradford Bank Baltimore, MD August 28, 2009
Affinity Bank Ventura, CA August 28, 2009
First Coweta Bank Newnan, GA August 21, 2009
CapitalSouth Bank Birmingham, AL August 21, 2009
Guaranty Bank Austin, TX August 21, 2009
ebank Atlanta, GA August 21, 2009
Colonial Bank Montgomery, AL August 14, 2009
Community Bank of Nevada Las Vegas, NV August 14, 2009
Union Bank, National Association Gilbert, AZ August 14, 2009
Dwelling House Savings and Loan Association Pittsburgh, PA August 14, 2009
Community Bank of Arizona Phoenix, AZ August 14, 2009
First State Bank Sarasota, FL August 7, 2009
Community National Bank of Sarasota County Venice, FL August 7, 2009
Community First Bank Prineville, OR August 7, 2009
Integrity Bank Jupiter, FL July 31, 2009
Peoples Community Bank West Chester, OH July 31, 2009
Mutual Bank Harvey, IL July 31, 2009
First State Bank of Altus Altus, OK July 31, 2009
First BankAmericano Elizabeth, NJ July 31, 2009
Waterford Village Bank Williamsville, NY July 24, 2009
Security Bank of North Metro Woodstock, GA July 24, 2009
Security Bank of North Fulton Alpharetta, GA July 24, 2009
Security Bank of Jones County Gray, GA July 24, 2009
Security Bank of Houston County Perry, GA July 24, 2009
Security Bank of Gwinnett County Suwanee, GA July 24, 2009
Security Bank of Bibb County Macon, GA July 24, 2009
Vineyard Bank Rancho Cucamonga, CA July 17, 2009
Temecula Valley Bank Temecula, CA July 17, 2009
First Piedmont Bank Winder, GA July 17, 2009
BankFirst Sioux Falls, SD July 17, 2009
Bank of Wyoming Thermopolis, WY July 10, 2009
Rock River Bank Oregon, IL July 2, 2009
Millennium State Bank of Texas Dallas, TX July 2, 2009
John Warner Bank Clinton, IL July 2, 2009
Founders Bank Worth, IL July 2, 2009
First State Bank of Winchester Winchester, IL July 2, 2009
First National Bank of Danville Danville, IL July 2, 2009
Elizabeth State Bank Elizabeth, IL July 2, 2009
Mirae Bank Los Angeles, CA June 26, 2009
Horizon Bank Pine City, MN June 26, 2009
Neighborhood Community Bank Newnan, GA June 26, 2009
MetroPacific Bank Irvine, CA June 26, 2009
Community Bank of West Georgia Villa Rica, GA June 26, 2009
Southern Community Bank Fayetteville, GA June 19, 2009
First National Bank of Anthony Anthony, KS June 19, 2009
Cooperative Bank Wilmington, NC June 19, 2009
Bank of Lincolnwood Lincolnwood, IL June 5, 2009
Strategic Capital Bank Champaign, IL May 22, 2009
Citizens National Bank Macomb, IL May 22, 2009
BankUnited, FSB Coral Gables, FL May 21, 2009
Westsound Bank Bremerton, WA May 8, 2009
America West Bank Layton, UT May 1, 2009
Silverton Bank, NA Atlanta, GA May 1, 2009
Citizens Community Bank Ridgewood, NJ May 1, 2009
American Southern Bank Kennesaw, GA April 24, 2009
Michigan Heritage Bank Farmington Hills, MI April 24, 2009
First Bank of Idaho Ketchum, ID April 24, 2009
First Bank of Beverly Hills Calabasas, CA April 24, 2009
Great Basin Bank of Nevada Elko, NV April 17, 2009
American Sterling Bank Sugar Creek, MO April 17, 2009
New Frontier Bank Greeley, CO April 10, 2009
Cape Fear Bank Wilmington, NC April 10, 2009
Omni National Bank Atlanta, GA March 27, 2009
FirstCity Bank Stockbridge, GA March 20, 2009
TeamBank, NA Paola, KS March 20, 2009
Colorado National Bank Colorado Springs, CO March 20, 2009
Freedom Bank of Georgia Commerce, GA March 6, 2009
Security Savings Bank Henderson, NV February 27, 2009
Heritage Community Bank Glenwood, IL February 27, 2009
Silver Falls Bank Silverton, OR February 20, 2009
Corn Belt Bank & Trust Co. Pittsfield, IL February 13, 2009
Sherman County Bank Loup City, NE February 13, 2009
Riverside Bank of the Gulf Coast Cape Coral, FL February 13, 2009
Pinnacle Bank of Oregon Beaverton, OR February 13, 2009
FirstBank Financial Services McDonough, GA February 6, 2009
County Bank Merced, CA February 6, 2009
Alliance Bank Culver City, CA February 6, 2009
Suburban FSB Crofton, MD January 30, 2009
Ocala National Bank Ocala, FL January 30, 2009
MagnetBank Salt Lake City, UT January 30, 2009
1st Centennial Bank Redlands, CA January 23, 2009
Bank of Clark County Vancouver, WA January 16, 2009
National Bank of Commerce Berkeley, IL January 16, 2009
Sanderson State Bank Sanderson, TX December 12, 2008
Haven Trust Bank Duluth, GA December 12, 2008
First Georgia Community Bank Jackson, GA December 5, 2008
PFF Bank & Trust Pomona, CA November 21, 2008
Downey Savings & Loan Newport Beach, CA November 21, 2008
Community Bank Loganville, GA November 21, 2008
Franklin Bank, SSB Houston, TX November 7, 2008
Security Pacific Bank Los Angeles, CA November 7, 2008
Freedom Bank Bradenton, FL October 31, 2008
Alpha Bank & Trust Alpharetta, GA October 24, 2008
Meridian Bank Eldred, IL October 10, 2008
Main Street Bank Northville, MI October 10, 2008
Washington Mutual Bank FSB Park City, UT September 25, 2008
Washington Mutual Bank Henderson, NV September 25, 2008
Ameribank Northfork, WV September 19, 2008
Silver State Bank Henderson, NV September 5, 2008
Integrity Bank Alpharetta, GA August 29, 2008
Columbian Bank & Trust Topeka, KS August 22, 2008
First Priority Bank Bradenton, FL August 1, 2008
First National Bank of Nevada Reno, NV July 25, 2008
First Heritage Bank, NA Newport Beach, CA July 25, 2008
IndyMac Bank Pasadena, CA July 11, 2008
First Integrity Bank, NA Staples, MN May 30, 2008
ANB Financial, NA Bentonville, AR May 9, 2008
Hume Bank Hume, MO March 7, 2008
Douglass National Bank Kansas City, MO January 25, 2008
Miami Valley Bank Lakeview, OH October 4, 2007
NetBank Alpharetta, GA September 28, 2007
Metropolitan Savings Bank Pittsburgh, PA February 2, 2007
Bank of Ephraim Ephraim, UT June 25, 2004
Reliance Bank White Plains, NY March 19, 2004
Guaranty National Bank of Tallahassee Tallahassee, FL March 12, 2004
Dollar Savings Bank Newark, NJ February 14, 2004
Pulaski Savings Bank Philadelphia, PA November 14, 2003
First National Bank of Blanchardville Blanchardville, WI May 9, 2003
Southern Pacific Bank Torrance, CA February 7, 2003
Farmers Bank of Cheneyville Cheneyville, LA December 17, 2002
Bank of Alamo Alamo, TN November 8, 2002
AmTrade International Bank Atlanta, GA September 30, 2002
Universal Federal Savings Bank Chicago, IL June 27, 2002
Connecticut Bank of Commerce Stamford, CT June 26, 2002
New Century Bank Shelby Township, MI March 28, 2002
Net 1st National Bank Boca Raton, FL March 1, 2002
NextBank, NA Phoenix, AZ February 7, 2002
Oakwood Deposit Bank Co. Oakwood, OH February 1, 2002
Bank of Sierra Blanca Sierra Blanca, TX January 18, 2002
Hamilton Bank, NA Miami, FL January 11, 2002
Sinclair National Bank Gravette, AR September 7, 2001
Superior Bank, FSB Hinsdale, IL July 27, 2001
Malta National Bank Malta, OH May 3, 2001
First Alliance Bank & Trust Co. Manchester, NH February 2, 2001
National State Bank of Metropolis Metropolis, IL December 14, 2000
Bank of Honolulu Honolulu, HI October 13, 2000

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Yesterday, Bank of America and J.P. Morgan Chase Bank announced they were changing their policies to allow customers to opt out of overdraft protection. Wells Fargo decided to follow in their footsteps late yesterday, announcing a number of changes at this bank. The following changes also apply to Wachovia, the bank that was acquired by Wells Fargo several months ago.

Wells Fargo is eliminating overdraft fees if the account is overdrawn by less than $5 and are limiting overdrafts to only four per day. Customers will be allowed to opt out of overdraft protection, so they don’t incur fees but transactions that would bring their accounts below zero will be declined.

All of these changes are improvements, although I see no reason for a bank to charge more than one fee per day. Regardless of what a bank charges, customers have the responsibility to monitor their own accounts. Accidents and emergencies happen, but in the end we should all be aware of what we have in the bank. The best defense against excessive bank fees is to pay attention and give the banks no reason to charge them. Here are some tips for avoiding overdraft fees.

Wells Fargo Announces Changes to Overdraft Practices, September 23, 2009

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JP Morgan Chase Bank is offering a $100 bonus for new customers who sign up for the Chase Checking account. If you are not a current customer of Chase, you can qualify for this $100 bonus with an initial deposit of $100 and by initiating a direct deposit or five purchases using your new debit card within 60 days. You will receive your $100 bonus 10 days after your direct deposit or fifth debit card purchase.

Like most account opening bonuses, the $100 is considered interest, so it will be reported to the IRS as interest income. You might owe taxes on the bonus as you would owe taxes on other interest earned in bank accounts.

Keep in mind that in order for this account to remain free, you have to abide by Chase Bank’s rules. Keep your direct deposit or make five debit card purchases each month to avoid a $6 monthly fee.

Also, if you close your account within six months, Chase will take the bonus back.

You can either apply for the account online or at a branch. To generate and retrieve your coupon, click here. This coupon expires December 31, 2009, but if there are more coupons after that point I will post them here.

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Overdraft fees are nothing to sneeze at. Having not always been a model bank customer, I know how it feels like an unfair punishment to have roughly $30 taken away when my account is already negative. I’ve also worked for Bank of America, and I can see why they use a dis-incentive to drive away bad customers.

I was a pretty generous Customer Service Rep., and would refund overdraft fees to as many customers as I could. But sometimes there’d be an awkward conversation when a customer would ask, “How can I stop getting these overdraft fees in the future?”

Naturally, I’d go into my speech about keeping a balanced checkbook (or something similar) with you, and how the “available balance” you’d get from an ATM or the phone service was often a lie. Some customers persisted (as well they should) and felt like there should be a way to not be allowed to go negative. It was tricky, and unlikely, but not always impossible to get your branch manager to agree to put that kind of hold on your account.

But now, any Bank of America customer can opt-out of overdrafting. If you’re down to $2.12 in your checking account, and you go to buy a Frappucino, you’ll have your card rejected at the register.

In addition, Bank of America also decided it won’t impose an overdraft fee if your account is above -$10, unless you don’t fix it within five days. And the limit of overdraft fees you can get in one day is now four, instead of ten.

JP Morgan Chase also announced that they’ll be changing their policies:

Starting in the first quarter of 2010, the bank will make overdraft protection opt-in for all customers, post transactions to accounts as they occur, and eliminate fees when accounts are overdrawn by $5 or less. It will also reduce the maximum number of fees per day to three from six.

Bank Of America Backpedals On Overdraft Fees, Huffington Post, Sep. 22, 2009

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