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Proposed rules to cap overdraft and late payment fees will increase costs for customers, JPMorgan says

Posted on by darion

Recently, Marianne Lake, CEO of Chase Bank — a unit of JPMorgan Chase & Co. — notified her 86 million customers that they should brace themselves for new banking fees if proposed new rules go into effect, including caps on over-the-limit fees and late payment fees.

Chase, the nation’s largest consumer bank and a major credit card distributor, said that if the legislation goes into effect, the bank’s lost revenue would be offset by new fees charged to customers.

Lake suggested the costs to consumers would be significant.

“The changes will be broad, radical and significant,” she said, according to the Wall Street Journal (WSJ). Lake added that the costs will most impact customers who can least afford them.

The Consumer Financial Protection Bureau has proposed regulations that would set an $8 limit on credit card late payment fees and a $3 limit on overdraft fees.

The Wall Street Journal also reported that work is underway to cap debit card fees and the commissions that companies like Venmo and CashApp charge for accessing customer data.

There are also concerns that the new rules could make it harder for banks to lend because they will be required to hold larger reserves for mortgages and credit card loans.

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Fewer free services

Lake believes that if the new rules go into effect, a number of currently free services, including credit trackers and financial planning tools, could incur fees.

She noted that previous rule changes had a similar effect, such as when new rules on debit card fees came into force.

The Wall Street Journal, citing consultant PricewaterhouseCoopers, reported that while some of the country’s larger banks will likely cover the new costs, smaller banks will struggle and will be forced to charge fees to their customers.

However, the partner said competition in the retail deposit market could force banks to offer free services to retain customers.

Dennis Kelleher, president of Better Markets, an economic think tank, supports the new regulations and says banks don’t necessarily have to raise fees for their customers.

“Banks say their only option is to pass on the costs to customers, but that’s not true,” he told the WSJ, adding that “banks are once again masking their attempts to maximize their own profits under the guise of what is good and what is bad for customers.”

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Banks have more options

Similar changes were proposed in 2010, after the 2008 financial crisis, when banks faced increased scrutiny. Ultimately, however, financial institutions decided not to pass on any new costs to customers.

Dan Goerlich, a consulting partner at PricewaterhouseCoopers, told the WSJ that large banks should be able to absorb the costs and that “any change in regulation that would reduce fees would create opportunities for institutions that are highly efficient.”

“Large banks can make up for the loss in consumer banking revenue with gains from wealth management and investment banking businesses,” he said, adding that “smaller and regional banks will struggle to make up for that.”

“Most customers today have easy and hassle-free access to retail banking. Keeping services at zero cost may be disadvantageous, but banks may be forced to act by other competitors who offer customers low-cost services,” he said.