Long the workhorse of the financial mainstream, the checking account has undergone a radical evolution in recent months. Banks are shifting to the business model embraced by airlines, unbundling a product and adding fees on an a la carte basis for services that used to be included.
Even worse, customers might not know about all the fees they could be charged until after the fact. A new report from the Pew Charitable Trusts finds that the average length of checking account disclosures is 111 pages, and there is a lack of transparency when it comes to fee information. Watchdog group U.S. PIRG reached a similar conclusion; in its research, only a slim majority of banks provided correct fee information. “In total, 23 percent did not ever give us the fee schedule. The other 20 percent gave us wrong information,” says Ed Mierzwinski, consumer program director.
The most visible of these new charges is a monthly maintenance fee for checking accounts, which many of the biggest national and regional banks have implemented. A growing number of banks now charge for hard copies of items like paper statements or check images, and many have rolled back perks like debit card rewards and reimbursements for using a non-network ATM. For some bare-bones accounts, there’s even a monthly fee that kicks in if the customer wants to speak to a teller.
(Read about how Bank of America now texts customers overdraft warnings)
There are two big reasons behind banks’ newfound zeal for nickel-and-diming. The first has to do with overdraft charges. Last August, the Federal Reserve prohibited banks from automatically enrolling customers in overdraft protection programs. Previously, banks would process debit transactions even if the purchase was greater than the account balance, then hit customers with a fee that was often as high as $35. This led to what personal finance experts tended to dub the “$38 cup of coffee,” since overdrawing by even a few dollars would trigger the fee. If a consumer didn’t realize they were overdrawn, they could easily rack up hundreds of dollars in fees.
“The thing that is really so frustrating is banks manipulate the order of transactions and process them in a way that better insures they’ll trigger an overdraft fee,” says Pamela Banks, senior policy counsel of financial services for Consumers Union. Say you have $100 in your account, and you make a $100 purchase and three $5 purchases. If the three small charges are processed first, you’ll only be on the hook for one fee. But if the $100 transaction goes first, you’ll pay three overdraft fees, one for each of the $5 purchases. Banks overwhelmingly opt for the latter version.
Those charges add up, not just for the customers, but for the banks as well. In 2009, financial institutions collectively raked in $37.1 billion from overdraft charges, according to market research firm Moebs $ervices. The Federal Reserve took aim at that income stream when they ruled that banks had to make overdraft an opt-in service; in other words, you’d have to specifically say you wanted your bank to process a purchase that would put you in the red instead of having them assume you wanted those transactions to go through unless you specified otherwise.
The other reason banks have gotten fee-happy has to do with a battle that’s taking place now between the banking and retail industries. It concerns interchange fees, which is the amount the merchant pays and the bank receives every time you swipe your debit card at a cash register. Banks currently get about 44 cents per debit transaction; the National Retail Federation wants to see that lowered to 12 cents per transaction, the amount proposed by the Federal Reserve last year.
