But the biggest drawback for consumers is that it limits banking options for people who make even one mistake. A ChexSystems history functions as a credit report for your checking account, except it only tracks negative information.

For example, if you have a ChexSystems report and you go to open a new deposit account with a bank that uses the company’s database, the bank can deny you the account on the basis of just one infraction. Even if you’re able to open an account and keep it in good standing, the bank can later close it if a ChexSystems report on you comes up.

Of course, smart consumers stay on top of their finances. The good news is that since ChexSystems is a credit reporting agency, consumers are entitled to one free report per year, which you can obtain online. Do they have incorrect information on you? Dispute the entry by following this link.

A secured loan, if you’re unfamiliar, is one backed by collateral, such as your car or your house. If you don’t pay your bills, someone comes and takes your collateral. And right now, more and more people are choosing to forfeit their possessions rather than sinking more money into their depreciating assets.

In McArdle’s words, here’s why that’s a bad thing:

If you have sizeable assets or stong income, the bank isn’t going to let you do a short sale just because your house has lost value and you don’t want to waste any more money on it. The second mortgage holder you’ve decided to stop paying will probably block the sale. If you let the house go into foreclosure while you still have assets, unless you live in a non-recourse state, the lender will come after you. As will the lender that repo’d your car. The borrowers always seem sort of shocked to find out that yes, lenders have legal recourse if you decide to stop paying them.

I wonder if they haven’t gotten this notion from all the articles about jingle mail and desperate families trying to short-sell. What seems to have sunk in is that you can stiff the bank. Yes, you can, but often only if it’s not worth suing you.

She wonders whether this unhealthy relationship with credit is just “part of the American soul” — I’d like to hope it isn’t. What does it say about our society when refusing to pay our debts on agreed-upon terms isn’t an ethical issue?

Bank of America just announced they’re raising their fees on most checking accounts in June, and as a customer I was surprised to discover that I could be charged $9.95 per month. According to their website, for “Standard Checking” accounts:

Starting June 5, 2009*, the Monthly Service Charge will be $9.95. This fee will no longer be discounted with direct deposit.
How to help prevent this charge:

• Maintain a minimum daily balance of $1,500.
• Maintain a combined balance of $5000 from linked savings or investment accounts.

I keep my money in a high-yield savings account to maximize my interest income, but to avoid this new fee I’d have to keep at least $1,500 in a checking account earning 0% APY. Not necessarily a huge problem, but definitely annoying.  And not everybody has the kind of savings I do.  For someone just getting out of school or making a big move, maintaining $1,500 is a tall order.

Even worse, in my opinion, is the fact that BofA is adding a new “extended overdraft fee” for overdrafts of more than 5 days.

As of June 5th, 2009, we will charge one $35 Extended Overdrawn Balance Charge for accounts overdrawn for 5 consecutive business days. This charge is in addition to applicable Overdraft Item Fees and NSF: Returned Item Fees.

So if someone spends $5 more than they have in their account, they are already charged a $35 fee. But now if they don’t repay the bank within 5 days, they’re charged another $35. So a $5 overdraft for 5 days would cost $70! I think that may actually be the worst deal I’ve ever seen, and I’ve shopped at Whole Foods.

That being said, I like the convenience of ubiquitous Bank of America ATMs, so for me, it may still be worth keeping my account (and maintaining a balance of $1,500 to avoid the monthly fee). But whatever bank you use, make sure to find out what fees they might charge you.

The Federal Reserve has proposed giving bank customers the right to choose whether to enroll in overdraft protection for ATM withdrawals or debit card purchases. Opting out of pricey overdraft protection would be a good move for anyone who’s ever been dinged by a $35 fee for erroneously believing an ATM or debit card wouldn’t let them spend money they didn’t have.

Most consumers believe debit cards are the same as cash — some even consider it the “good plastic.” Yet the Federal Deposit Insurance Corp. (FDIC) conducted a study last year that found that 81 percent of banks allowed overdrafts on ATMs and debit transactions. And 92 percent of the banks in that survey did not have policies to inform customers that they lacked enough money in their accounts to cover their purchases before assessing fees averaging $27.

The Federal Reserve proposal would allow consumers to opt in or out of overdraft protection, but Ms. Singletary has a better idea:

The more consumer-friendly way to address this problem is to allow people to be informed that they are broke before a transaction is approved. At that point, they can decide whether they want to accept the overdraft protection and the fee. I doubt the banks will suffer a significant loss of income. There are plenty of people who will still choose to pay the price for this service.

Bank patrons have a responsibility to monitor their accounts diligently and make sure they aren’t overspending. But Ms. Singletary is right that informing consumers before they overdraw their accounts would save many people lots of hefty fees.

Typically, banks approve overdrafts on ATM and debit cards and–often without notification–charge customers as much as $60 as part of an “overdraft protection program.”

A new Federal Deposit Insurance Corporation (FDIC) study found that banks and credit unions charge Americans billions in overdraft fees every year. Econ4U’s most recent survey showed that 50% of respondents admitted to having overdrawn their checking account. Banks typically charge $35 on a $5 overdraft (a 700% interest rate!), which makes these fees much more expensive than any other form of short-term borrowing.

Considering the growing number of Americans who are unfairly slammed by overdraft fees, this closer scrutiny is welcome, and long overdue.