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Banks Relying More On Fees From Consumers

Focus on fees could add to bailout backlash

By Mark Huffman
ConsumerAffairs.com

August 10, 2009
Consumers, it seems, have had it up to here with their banks. In the last three months, about one-fourth of the 20,000 complaints to ConsumerAffairs.com have been about banks and credit cards.

Bank of America has generated the most complaints since May 10 -- 2,589. JP Morgan Chase is second at 2,589.

In addition to concerns about rising interest rates and reduced credit limits, consumers complain about the increasing amount of money they seem to be paying in fees.

"When you have an accidental overdraft on your account, they pay the highest debit on the account first so that it creates a cascading effect on the account," John, or Auburn, Georgia told ConsumerAffairs.com. "This creates huge multiple overdrafts resulting in higher profit to the bank in overdraft fees because it leaves more transactions left uncovered by the remaining balance. In my case it was over $280.00 worth of $35.00 overdraft fees were assessed to my account."

Banks, in fact, heavily depend on fees from customers to increase profits. Unlike loans, fees are money with no risk. Rising credit card default rates and escalating foreclosures have made many banks reluctant to lend out their money.

So last year, bank income from late fees, overdraft fees, and loan origination fees contributed a generous 53 percent of bank profits, according to credit card advisory firm R.K. Hammer.

Overdraft fees tend to be the most onerous for consumers. When a customer unknowingly overdraws their account, banks usually charge a minimum of $28 -- often as high as $35. Many consumers have asked that their debit purchase be denied if there are insufficient funds in their account, but banks have been unwilling to do this -- so far, at least.

Rep. Carolyn Maloney (D-NY) has pushed the Federal Reserve to force banks to allow customers to opt in for so-called "overdraft protection." Those who want their purchases to go though despite insufficient funds, and are willing to pay the $30 overdraft fee, could go on doing so.

"Consumers simply shouldn't be enrolled in overdraft programs without their consent," Maloney wrote in a letter to Fed Chairman Ben Bernanke in May. "Since Congress just required an affirmative opt-in to over-the-limit fees in my credit card reform law, regulations should similarly require an opt-in to overdraft fees. Whenever banks step over the line of reasonable business practices into abuse of consumers' trust and understanding, government needs to act."

But so far, the government hasn't acted and even the Democratically-controlled Congress has failed to pass Maloney's bill that would make the overdraft opt-in law.

Building backlash

Consumers and lawmakers aren't the only ones losing patience with banks. Economist Ben Stein recently warned of a building public backlash against the nation's banks, that are now reporting robust profits after taking billions of taxpayer dollars.

"So, what has the banking sector done with the profits and their newfound health?" Stein asked in a recent column. "For one thing, they have not loaned to home buyers. Just try to get a home loan today on the security of the home. It hardly can be done."

Stein said bankers' pay and bonuses, meanwhile, are back to pre-crash levels. Much of the money, he maintains is being paid for by taxpayers.

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