Banks Ramp Up Fees to Beat Card Deadline

Credit Union Magazine
September 2, 2009 | COMMENTS

Consumers need to keep up their guard as financial institutions increasingly impose new fees and charges to balance their books in the wake of the economic downturn.

Banks and card companies have gone on the offensive in advance of proposed new consumer protections, according to Marketwatch.com. For many consumers, that could mean an unexpected sting on monthly bills.

“Fee income is becoming increasingly more important as interest income falls as a percent of total revenues,” Bob Hammer, CEO of R.K. Hammer, a bank-card advisory firm, tells MarketWatch.

Late fees, loan origination, over-the-limit, and overdraft charges, for example, helped generate a hefty 53% of banking industry income in 2008, according to Hammer. That's up from 35% of income in 1995. At $19 billion, credit-card penalty fees alone are nearly 80% more than what they were in 2003.

Overdraft charges are becoming increasingly more lucrative, too. The average bounced check fee is $28.95—a rate that rises every year, according to Greg McBride, senior analyst at Bankrate.com. That's for the first one. Most banks have a tiered structure in which the fees for subsequent overdrafts rise to $33 or $35 if you overdraw two, three, or four times.

“The best defense for consumers is to determine what kind of habits they can change so they're not held hostage to those fees,” McBride tells MarketWatch.

Banks see plenty of room to grow revenue from those fees and the pressure is on for them to do so. “If there's a way to create and use a fee, it will happen,” observes Adam Levine, chairman of Credit.com. “These guys have never met a fee they didn't like.”

The fees aren't necessarily bad, consumer advocates say, so long as they're reasonable. But banks are drawing wide margins around what's considered “reasonable.” Tell members who aren't using a credit union-issued card to read their mail. If they get something from a bank, it's usually because the bank is making a change.

Consumers who think a particular fee is inappropriate are advised to pick up the phone and ask for a pass. No bank is going to advertise that it waives fees on a regular basis, notes MarketWatch, but many of them do when asked.

Here are 10 fees you should tell members who are using bank cards to keep a close eye on:

Overdraft. Bounced checks can result in multiple charges before balancing the account. Many consumers argue that banks should deny them cash at the ATM if it's going to overdraw the account.

Deposit returned. If a check deposited in your account bounces, you're charged a fee. Caution: accept checks only from trusted sources.

Checking. This is the privilege-of-using-your-own-money charge that many banks did away with years ago. But charges are starting to creep back into the system. Consumers should not assume their checking accounts are fee-free.

Teller. Although banks drew fire from consumers in the 1990s when they tried charging a fee for human interaction, there are scattered reports of these fees popping up again. For example, the first two teller visits a month are free but you're charged for extras.

Inquiries. The phone version of teller fees. Make a call about your account, a question about a charge, or to order a new book of checks, and you could get hit with this service fee.

Closing accounts. Consider this a punitive fee. Many banks will charge you a fee if you close an account within 90 days—and sometimes within six months—of opening it.

Credit cards. Late fees and over-limit charges are already steep but could go higher. New legislation will put caps on some of those fees and on how they're charged, but until then, expect them to grow. Grace periods also are expected to end or be severely restricted.

Annual. In the early days of credit cards, issuers charged consumers an annual fee for the right to charge. Competition drove most away, but it looks like they may make a comeback.

Currency conversions. Got extra euros from a recent trip that you want converted to dollars? It will cost you, as these fees are on an upswing.

ATMs. Customers who use an ATM that isn't part of their bank's network could get whacked twice—once by the bank and again by the ATM's owner. And the bite is getting bigger.

This article originally appeared on creditunionmagazine.com. Reprinted with permission.