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The effect of the Dodd-Frank Act on banks and consumers

December 11th 2012

Banks have been the one and only place where people feel safe about storing their money and various other valuables, be it cash, bonds or shares. Over the years, banks have evolved from institutions which safeguard your money to manifold corporations extending their services into various sectors like investments and money management.

People have come to depend on banks more than just for the safety and the interest rates on offer. There are various facilities like automatic clearing houses, checking accounts, automatic teller machines and electronic fund transfers which people use on a daily basis.

Since the market crash and financial meltdown of 2008, banks have been under the strict scrutiny of the Federal government. The crash was in no less part a direct result of shady business practices attributed to the big banking corporations and the Dodd-Frank Wall Street Reform and Consumer Protection Act which came into effect in 2010 has put restrictions on certain activities which generated profits for the banks.

In order to cope with the shortfall, banks are slowly restructuring certain services which would directly affect consumers at large. Here is a short list of such changes which are slowly coming into effect:

No more free checking accounts

Most banks, as a generally recognized industry practice, provided checking accounts without charging any monthly or annual maintenance fees. The practice existed to motivate clients to transfer over savings and loan products. Currently, only 39 percent of the banks in the continental United States offer checking accounts free of charge and without a minimum balance requirement.

Right before the Dodd-Frank reform came into effect, as many as 76 percent of all banks used to provide free checking accounts. In case you are sorely missing the flexibility of a free checking account, you should know that as many as 72 percent of the largest credit unions still have that option open.

Compulsory minimum balance requirement

In order to cope with the shortfall and to retain clients, some banks have started offering free checking accounts in another format. Customers are offered free checking accounts only if they can manage to maintain a daily balance of at least $732.02 on an average. Some of the largest banks have even started charging a fee for online statements which can be avoided if a customer maintains a minimum daily balance of $1500 or make a direct deposit of at least $500 on a monthly basis.

Maintenance, ATM and overdraft fees

Overdraft and NSF fees are at an all time high averaging more than $30 for a returned charge or if your bank allows you to draw more money than you have in your account. Coupled with the payday lender epidemic that is plaguing America currently, this small change has directly affected millions of consumers everywhere and has also triggered a mass exodus with more consumers opting for credit unions.

Monthly maintained fees have also gone up several folds and are now averaging at $5.48. Banks are also lowering the number of transactions and types of transactions which are covered by the monthly maintenance fees and customers exceeding the limit are being charged extra on a per transaction basis.

Banks generally charged ATM users a small fee only in case the user was the customer of another bank. Things have taken a more expensive turn after some banks started charging their own customers for using ATMs to draw or deposit money. Although the rate of change is minute, it is set to have long term effects.

Given the current direction and policies banks are increasingly involving themselves in, one could argue that the Dodd-Frank Act might have averted a nuclear meltdown but the fallout created by proxy is affecting consumers at large.

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