Now that Bank of America has scrapped their plan to charge a $5 debit card usage fee, and Chase and Wells Fargo have followed suit, you might think banks have learned their lesson about excessive fees. Well, they have, and that lesson is "be less obvious." Banks are still looking for new ways to squeeze extra money out of you, and they have been for a while. They've just had much better luck with subtle fee hikes. You may have noticed that most "free" checking accounts now have a higher minimum balance requirement than they did before, or maybe they require you to perform more types of transactions each month. Your account's still free... if you can keep up with the changing rules.
More fees to come
There are plenty more surprise fees on the horizon. If you have an account at a big bank, expect to be charged more for services you already pay for, and get used to paying for services that used to be free. TD Bank recently announced that they'll be adding a new fee and hiking some existing fees in December. Savings account customers will become subject to a $9 excessive withdrawal fee, wire transfers will be $15 instead of $10, and certified checks will be $8 instead of $4, just to name a few examples.
TD Bank is in good company. Also in December, Citibank will start charging its mid-level account holders $20 a month if they don't maintain a minimum balance of $15,000. The minimum balance requirement was previously raised to $6,000, which is already a stretch for many people. And if you think you're off the hook for having a "simple" checking account, think again. Bank of America's new e-banking account charges $8.95 a month for the privilege of talking to a teller at your local branch when you need to make a transaction or deposit. This is just the tip of the bank fee iceberg. It all adds up to bad news for struggling consumers.
Nothing to see here! Move along
While the new fees may be upsetting, there's absolutely nothing wrong with them from a legal standpoint. Banks are required by law to inform their customers every time there's a new fee or account requirement, and they do. They just don't go out of their way to make sure you've read their emails, opened their letters or checked your account statements. When consumers skim or skip these important messages, they don't hear about new fees until they have to pay them, and they feel like they've been had. But even diligent customers are getting frustrated with fees. The debit fee backlash has made that perfectly clear. Nevertheless, if you ask the banks why they keep adding fees, they'll tell you they have no choice. They're just trying to make up for their lost profit margin.
Sneaky fees are big business
Banks have always made money off fees that many consumers don't notice. These fees have always been disclosed, but never prominently advertised. Many of them took advantage of customers who had difficulty making payments. Take overdraft fees, for example. Before the Federal Reserve banned automatic overdraft protection, banks could always count on charging customers a hefty fine each time they didn't have enough funds to cover a transaction. Now customers must opt-in for this service.
Consumers also don't notice the fees they don't have to pay. Many of the "free" bank products they enjoy, such as debit cards, are paid for by other people (in this case, the merchant who accepts your card). With new financial regulations putting restrictions on these fees, banks have gotten creative and added others. This is why it's way more common to see checking account fees, and perks like debit rewards have disappeared at many institutions.
The ongoing push for fee transparency
All this begs the question: is it people's responsibility to sift through paperwork and keep tabs on every little fee, or should banks be required to simplify things for their customers? In April 2011, long before the debit fee hullabaloo, the Pew Health Group's Safe Checking in the Electronic Age Project released a study of checking account terms and conditions. The median length of bank disclosures (all the policy and fee information) was a whopping 111 pages. U.S. Senators Jack Reed and Dick Durbin have recently taken notice, and declared that bank paperwork needs to be simpler. On November 3rd, they asked America's banks to voluntarily adopt the Pew's sample checking account disclosure form in order to make account terms easy for consumers to understand.
Credit card terms and conditions: a good role model?
It wouldn't be unprecedented for banks to adopt a short, standardized format for checking account terms. They already have something like that for credit card disclosures: that ubiquitous black and white table with your APR, foreign transaction fee, and other payment disclosures is called the Schumer Box. It's just a few pages long, and it makes it much easier for consumers to compare credit card offers from multiple banks. In a Schumer Box, you'll find the same important information in the same place each time, and it will always be written in a 12-point font, minimum. Former New York congressman Charles Schumer drafted the legislation that took effect in 2000.
Not a perfect solution, but a good start
Of course, the Schumer Box could also be a case against the Pew disclosure box. Even with a comparison chart, many consumers still don't understand how their credit cards work. An APR doesn't provide a clear picture of what your debt payments will be, even when it's in 18-point font. Furthermore, clear credit card disclosures can't force people to spend within their means or fix bad credit. In order to create real reform, America needs to teach its citizens how to manage their finances, and give the disadvantaged a real means to pull themselves out of the poverty cycle. A checking account disclosure box will not fix these problems. Nevertheless, it's a step in the right direction. Anything that helps consumers make more informed choices is a good idea. Even if banks don't adopt the Pew form, let's hope they pay attention to consumer concerns. In the mean time, do your best to read every bit of bank paperwork that comes your way, and take responsibility for understanding your account terms. If you don't understand something, or don't like a new fee, don't wait to ask about it.
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Apparently, the major banks are unaware that customers still have a variety of financial services available from regional banks and credits that do not include any of the proposed assaults on the wallets of bank customers by the executives in the marble-tiled executive offices.
The banks are also unaware that debit cards and apps to deposit checks via phone were all implemented because they saved money for the bank and provided a new service to the customer.
Anyone receiving a notice that their nation-wide bank is proposing to cover the billions of dollars of losses created by bad management decisions associated with subprime mortgages by increasing fees for banking services still has the option of transferring the banking services to a a local credit union, or regional or local bank, that is in business to serve customers, not cover executive losses.
Interestingly, though, not all of the banks' actions will be unfriendly to consumers. The current ramp up of credit card rewards programs, for example, is hugely beneficial for consumers, especially for those with higher credit scores. In addition to the attractive sign-up bonuses, many card issuers also offer much better ongoing reward terms. So everyone should take advantage of that trend, credit history permitting.
Merchants, on the other hand, will experience these developments quite differently. They won the debit interchange war, but now the whole thing can be at least partially reversed. It is unlikely to happen, but if enough customers switch from debit to credit cards, retailers may actually end up being worse off than they were before the interchange reform took place, because the interchange fees for rewards cards they will end up paying are much higher than even the old debit interchange fees.
What will happen in reality is that there will be some shift from debit to rewards cards, but on aggregate merchants will still be net winners. Issuers will find other ways to make up for their lost interchange revenues and guess who will end up footing the bill. http://blog.unibulmerchantservices.com/issuers-ramp-up-credit-card-rewards