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How marketing saved bank overdraft fees

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New rules apply to banks for charging overdraft fees

Here's BusinessWeek on the Consumer Financial Protection Bureau's decision to instigate a new probe of bank overdraft fees:

In November 2009, the Federal Reserve moved to rein in the high fees that banks charged consumers who overdrew their accounts when making debit-card purchases or withdrawing cash from an ATM....

In theory, that should have dealt a major blow to the overdraft business.... [But] overdraft fee revenue to banks from ATM and retail purchases was still on track to top $16 billion last year, just a 16 percent drop from its peak in 2009, according to Moebs Services, a banking consultancy. The rates are still so high in part because many banks launched aggressive marketing campaigns to get customers to sign up, with letters, calls, and e-mails that at times were alarmist warnings of what would happen if you didn’t opt in.

Bankers, for their part, say it wasn’t marketing that led consumers to sign up—it’s because consumers want the ability to overdraw their accounts in a pinch. “This can be a way of getting piece of mind,” says the American Bankers Association’s Richard Riese. He says even if a consumer didn’t fully understand the overdraft fees when he signed up, he’d get notice of the fee on a monthly statement and could opt out at any time. “The light bulb would have gone off real fast if it wasn’t what they wanted,” he says.

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