11/11/2011 12:18 pm ET Updated Jan 11, 2012

Are Bank Fees Too Complex? The Case for Fee Transparency

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.