Bank fees to send patrons packing

Illustration by Marleigh Culver

Colin Hannifin
Columnist

Illustration by Marleigh Culver

Banks have been having a crisis of confidence over the past several years.

After the housing bubble burst in 2008, dragging the rest of the economy into the deep pits of recession, banks weren’t seen as the friendly, dependable, neighborhood-based institutions they once were. Distrust of banks has been rampant of late, as they have been seen as the large, profit-driven corporations that they’ve always been.

It’s only growing now, as many banks are starting to charge monthly fees for the convenience of using a debit card. While this situation is unfortunate and causing rash reactions from masses of consumers, it should neither be surprising nor will it be the end of new fees.

Bank of America has announced plans to start charging debit card users $5 a month to use their debit cards. This has lost the largest U.S. bank scores of customers, especially after their increased monthly fees of checking accounts several months ago.

But Bank of America users are not alone: Wells Fargo, the recent buyers of Wachovia, will start testing a similar $3 fee in several states this month. SunTrust and J.P. Morgan Chase & Co. have started charging similar fees to limited groups of customers, with plans to roll them out nationwide. Citibank, which is trying to capitalize on the mass of disgruntled customers, won’t charge a fee for using its debit cards but will increase monthly fees on checking accounts.

Basically, with a big bank, the fees are unavoidable.

These new fees leave a lot of customers asking why or closing out their checking accounts and moving banks. They blame the banks for nickel and diming their existing customers, which doesn’t bode well for customer retention. But while banks are chasing revenue, an act of Congress is actually the reason they’re left to treat individual customers this way.

Banks used to charge merchants 44 cents per debit card transaction, a fee that largely was pushed down to the consumers. New federal regulation, which took effect last Saturday, caps the charge to 24 cents per transaction. This seemingly small change will cost banks hundreds of millions of dollars.

Banks have had a hard couple of years. Billions were lost in the mortgage crisis, and they aren’t out of the woods yet when talking about new regulation. But, as many will point out, this was the banks’ fault – they made loans they knew they shouldn’t be making in an attempt to ride the housing bubble to the top, only to crash when it popped. Now consumers are being punished by the banks’ irresponsibility in the form of higher fees.

To that, I have no answer. The increase in fees is unsurprising, as banks need to maintain revenues to maintain their own financial stability. The fees are not without merit – for one customer to have a “free” checking account, the bank has to spend about $300 a year on administration costs. As sources of revenue – like the charges to merchants – are disappearing or restricted, they need to find new ones. Unfortunately, a source of that revenue is end consumers.

This is unlikely to be the end of new charges and fees. They seem likely to hit college students especially hard, as we are more apt to maintain small account balances (which are less profitable for the banks) and use our debit cards often. There are tricks to avoid these monthly fees – use cash more often (use at ATMs are not subject to the fee) or use the card as a credit card.

Customers are likely to flock to local banks and credit unions in an attempt to avoid the increased fees. Whether they find a haven will be determined in the coming months. Short of keeping our money in our mattresses, there may be no escaping the will and whim of those we trust to hold our money.

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