A few weeks ago, Bank of America found itself mired in controversy when they announced the addition of a $5 monthly fee for debit card users. Their announcement closely followed other new fees from big banks, such as Chase, Wells Fargo, SunTrust and HSBC. Citibank also announced a $20 monthly fee as of November 1st for those checking account users who don’t keep a minimum balance of $6,000 in their combined accounts.
This new fee frenzy for debit card users isn’t the first significant change to consumers’ debit card accounts. Many banks have cut back on their debit card rewards programs or eliminated them entirely. The cost to subsidize such programs was no longer acceptable in their eyes.
Bank fees certainly aren’t new, nor are they unexpected. The real question is: Why so many - and why now? The answer will vary depending on whom you ask. Some consumer advocates argue that bank fees are charged for the sole purpose of juicing a captive customer, one who is either unwilling or unable to go through the hassle of moving their accounts to another bank (who might start charging them a new fee soon thereafter, anyhow).
If you listen to representatives from the banking industry, though, they’ll tell a very different story. Their story is one of excessive regulations over their revenue generating practices, such that they have no choice but subsidize their legislative compliance costs by imposing higher fees on customers.
According to Jamie Dimon, the CEO of JP Morgan Chase, “If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger.” So, what regulations have emerged in the past few years that are acting as an incentive for banks to charge us more fees? Well, in all fairness to the banks, the list is long:
1. No more over limit fees for credit card use. The exception is if the cardholder gives the bank permission to charge them the fee, normally $35.
2. No more overdraft protection fees. The exception is if the customer “opts in” and allows the bank to charge them the fee, normally $35-$39.
3. Debit card interchange fees (“swipe” fees) capped at $0.21. This fee used to be on average $0.44 per transaction and was paid by merchants, not consumers. This one still befuddles me, as consumers and consumer advocates were NOT asking for this “protection.” Have you noticed a 21 cent reduction on the things you purchase with a debit card? If not, then your merchants aren’t passing the benefits of the lower margin down to you.
It’s this last one that is pushing big banks to charge you for debit card usage. They don’t make as much from the merchant swipe fee any longer, so they’d rather you use a credit card issued by the same bank. Credit card swipe fees were not capped, so they still do very well on these merchant fees.
How To Avoid Bank Fees
Other than interest, the most expensive bank fees are punitive, such as fees for paying your credit card bill late or overdrafting your checking account. These fees are easily escaped by simply avoiding these actions.
The problem is that fees are rapidly creeping into the lives of even “well-behaved” customers, making them harder to avoid. However, there are ways to avoid even what appear to be justifiable fees:
Credit Unions – There are over 10,000 credit unions with about 76 million customers, so they’re not a secret (although my students at the University of Georgia looked at me like I was making stuff up when I started talking about credit unions two weeks ago). And while credit unions do require that you be a part of some of unique population (state employees, federal employees, teachers, other employer groups, etc.), there are simply so many that chances are you’ll qualify for membership with at least one.
Credit unions pride themselves on providing top-notch service to their customers (“members”). Most offer similar services to the mega-banks, and do so with more competitive rates and fees. And yes, your deposits are insured up to $250,000 by the National Credit Union Administration, just as the FDIC insures most bank deposits.
Customer-Friendly Local, Regional or National Banks – When we get mad at banks, we tend to focus on the largest 10-15 (primarily because most of us are doing business with at least one, if not more, of them). But, there are also thousands of smaller, local, and regional banks that are much less likely to charge excessive fees than the big boys. And, there are even some large national banks that pretty much avoid the fee game. Check out USAA Federal Savings Bank’s fees, for example — if you can find any.
Online Banks – When there aren’t any buildings to pay for, the cost of doing business goes down. It’s that simple. Having said that, doing business with a bank that doesn’t actually exist in the physical world is a leap of faith for many. The good news is that most of them are FDIC insured so your dough is protected (up to $250,000).
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.