Fees? Bank on it
From bank accounts and mortgages to credit cards and car loans, let the buyer beware: Financial fees are on the rise. And many are just waiting to blindside you.
Sometimes they are buried in fine print, wrapped in complicated verbiage or lost amid stacks of documents, consumer groups say.
And while bankers claim they are rare, the so-called hidden fees of financial services have contributed to banks’ double-digit growth in fee income in recent years.
Consumer groups constantly push for regulations that would cap fees and require better upfront disclosures. Bankers argue that the vast majority of institutions charge reasonable fees and provide clear disclosures: It’s just that some consumers never read them. Besides, sometimes well-meaning legislative reforms can backfire by adding costs and inconvenience for customers, they say.
“You don’t want to put in place any kind of restrictions on everyone to address the problems caused by a very small minority,” said Rob Rowe, regulatory counsel for the Independent Community Banks of America, a trade group based in Minnesota. “In the long run, you end up hurting everyone.”
Consumer advocates are not convinced. They claim that these hidden fees have actually become more prevalent in recent years. The reason? Low interest rates have put a squeeze on interest income, so banks have increasingly turned to fees to boost revenues. As a result, many types of fees have emerged.
Among them: There are charges for talking to account representatives, using telephone banking, closing an account within 90 days of opening it and having a credit-card account, even if there is no balance.
Typical fees such as those for using out-of-network automated tellers and insufficient fund charges also continue to rise, according to Bankrate.com, a financial consumer research firm. Bankers argue, however, they have actually worked to minimize the rise in fees, despite the difficult economy of recent years. They have also created “free checking” accounts and other ways to make it simpler for customers to avoid fees, bankers said.
Overall, banks reaped $31.8 billion in account-service fees in 2003, up 34 percent from three years before, the Federal Deposit Insurance Corp. reported. Most fee increases have outpaced inflation during that period, consumer analysts say.
“In any financial product you look at these days, more and more of a company’s profits depend on fee income,” said Lisa Lee Freeman, finance editor for Consumer Reports. “And sometimes, they are not disclosed openly at all. It’s in the fine print.”
One of the latest hot-button issues is the “bounce protection” fee. Most banks offer overdraft coverage — a safety net that usually costs about $10 per occurrence and helps the customer avoid transaction rejections and bad check fees from merchants.
But some banks have turned that practice into a short-term loan service, often with triple-digit interest rates, consumer experts say. It is a practice, they say, that particularly hits lower-income people, often living paycheck to paycheck.
Here’s how it works: Say a customer overdraws his account by $100. Some banks charge $20 or more to cover it, and $5 for each day it goes unpaid.
Such fees translate to an annual percentage rate of 200 percent to 300 percent.
Bounce protection may also allow some customers to fall into a sort of overdraft hole. For example, automated teller machines will not warn customers if a transaction overdraws their accounts. In some cases, ATMs even mislead customers about their available balance, giving them a figure that includes the amount of overdraft protection.
So it is possible that customers could use ATMs, debit cards or checks several times a day, unknowingly incurring overdraft fees each time.
The overdraft issue has drawn the ire of major consumer groups, which have urged federal banking regulators to restrict the fee practices and treat overdraft protection like the pay-day loan business.
But regulators have been reluctant to intervene.
The Federal Reserve recently said banks can continue their overdraft protection business without regulatory interference. The Fed did express concerns about how some banks were marketing the service and advised financial institutions to provide customers with more upfront disclosures clearly spelling out how the fees work.
Still, industry officials say banks could improve their communication to customers about overdraft protection fees.
While there are still some technical issues about the ATM changes, many banks already are adopting better disclosures about fees in general, according to Rob Rowe, the lawyer for the community bankers’ group.
Such changes would be welcomed, but consumer advocates remain skeptical.
“In so many instances, banks are just cleaning up at your expense and it’s all perfectly legal,” said Lisa Lee Freeman, finance editor for Consumer Reports. “The bottom line is you have to ask tough questions of your banker or whatever financial institution you’re dealing with. Be aware of what they’re charging. Do your homework and shop around.”