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WASHINGTON – Your bank wants more of your money, and it’s found a way to get it: by jacking up the fees on your account.
Customers are paying more to maintain a checking account and withdraw cash from an out-of-system ATM – and when they bounce a check. To make up for declining revenue, many banks are boosting fees and are requiring higher minimum balances for many accounts.
The institutions also have made it easier for customers to spend more than is in their accounts – and then hit them with substantial fees, a practice so vexing to consumer advocates that the Federal Reserve is thinking of regulating it.
Bank revenue has plummeted on the back of foreclosures and rising credit card delinquencies. Now, Congress has passed a law cracking down on arbitrary and excessive credit card fees. So the banks have been fighting back.
“There is an economic storm that has made revenue fall,” said Michael Moebs, an economist and chief executive of Moebs Services, an economic research firm in Lake Bluff, Ill. “Fee income is basically where banks and credit unions can offset both loan- and investment-related losses.”
Bank of America this year raised the maximum number of times customers can get hit with overdraft fees from five a day to 10. On top of that, it began charging a one-time fee of $35 if the account remains in the negative for more than five days. The bank also raised the monthly fee on My Access checking accounts to $8.95 from $5.95. Citigroup’s Citibank last year increased its overdraft fee to $34 from $30 and its ATM fees for non-Citibank customers to $3 from $2. Wells Fargo also last year increased its maximum overdraft and insufficient funds fee to $35 from $34.
“The most consistent increases have been seen on punitive-type fees such as bounced check charges and ATM fees, and those are the two categories of fees that are easiest to avoid,” said Greg McBride, senior financial analyst for Bankrate.com, which tracks the banking industry.
In a study of fees last year, Bankrate.com found that the average bounced check fee rose 2.5 percent from 2007 to nearly $30. The average ATM surcharge in 2008 was up more than 10 percent to almost $2.
To avoid monthly fees on accounts that pay interest, customers had to maintain an average of $3,461.84 in checking accounts, up 4 percent from the year before.
Banking officials said they are simply reacting to market forces.
“I think when you look at the whole – all of the fees overall – the landscape has changed, and that has meant rising costs for our industry,” said Anne Pace, a spokeswoman for Bank of America. “For the bank to continue offering competitive products and services, and making sure we are lending responsibly in the current environment, we have to adjust our prices.”
She added that in some cases, the bank changes have favored consumers. For instance, she said, the bank reduced the overdraft fee to $10 an item if overdrafts in a day total $5 or less.
Overdraft fees have become an important source of income for banks. Years ago, banks rarely approved point-of-sale debit transactions when the money to cover the cost was not available in the customer’s account. The overdraft fee was used primarily as a penalty to keep customers from spending more than they had.
Then they became too profitable for banks not to embrace. A 2008 Federal Deposit Insurance Corp. study found that insufficient funds or overdraft fees made up 74 percent of service charges on deposit accounts.
Moebs Services, which provides data to the federal government, estimates that overdraft revenue will reach $38.5 billion this year. The median overdraft fee will be $27.50 this year, up from $25 last year, Moebs said.
Consumer advocates said overdraft fees are a danger because they can quickly add up and eat into people’s available cash when many are mired in debt. Banks too often charge disproportionately for the service, advocates said.
“The purpose of overdraft protection or courtesy overdraft, as it’s often called, is to turn something that’s like a parking ticket into a profit center,” said Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group. “The $4 latte becomes the $39 latte after the $35 fee. Overdraft protection is a misnomer.”
