Without overdraft fees, why would banks offer checking accounts?


There has been a significant populist outcry over the predatory overdraft fees charged by many of America's leading banks, and with good reason. In response, several banks have radically altered their overdraft policies, but that may not be enough to appease regulators. "We do need some regulatory standards in this area," said FDIC Chairwoman Sheila Bair said in an interview with USA Today. "We need the Fed to finalize rulemaking in this area."

Here's the problem with eliminating overdraft fees: It will encourage banks to turn away many low-income, low-asset customers, forcing them into the shadowy market of check cashing services, Western Union money orders, and payday lenders.

Originally published