Who could blame the average bank customer today if they feel nickeled and dimed–and dollared–by their bank?
There is a fee when an account drops below its minimum balance, a $20-plus fee for bouncing a check, fees for overdraft protection and, at some banks, a fee for using a debit card to get cash back at the grocery.
Bank fees have gone through the roof, and that’s put many consumers in a snit.
“They’re just skimming off the top,” said Natasha Andric, a research assistant at a financial company in Chicago. “It’s a total rip-off.”
Banks say they have no choice: Non-bank competitors have been chewing away at their traditional money-making products–loans–and they need to make up the revenue.
For decades, bank fees have been growing in number and size because of their growing importance to the bottom line: Fee income represented 43 percent of net operating revenue at the nation’s banks in 2000, more than twice the 18 percent it represented in 1976, according to the Federal Deposit Insurance Corp.
In 2001, fee income at commercial banks totaled $157.2 billion.
Although they are the subject of a significant amount of attention–and outrage–only about 17 percent of the fees come from service charges to deposit accounts, with the bulk coming from credit cards and corporate services.
Much of the discontent comes from customers who suddenly must pay fees for services that used to be free–teller transactions, using automated teller machines and certain debit card transactions.
Banks do a dance with consumers to determine how much they can charge without losing profitable customers. But sometimes the motivation is more complex than simply generating revenue: Often, the fees are charged to customers who are deemed unprofitable or expendable. Sometimes they are imposed strategically, to encourage customers to behave in ways that benefit the bank, such as using ATMs instead of tellers–a la the old First Chicago NBD Corp.’s infamous $3 fee–or using the bank’s ATMs instead of debit cards to get cash.
In an interesting twist, First Chicago’s new parent, Bank One Corp., recently waived all teller fees for customers in one of its middle-of-the-road checking accounts, but simultaneously stopped waiving fees on that account for withdrawals from non-Bank One ATMs.
Why? To send customers toward Bank One offices. “We’re encouraging customers to use our own machines,” said spokesman Thomas Kelly.
Bank One also raised the surcharge for non-customers using its ATMs to $2 from $1.50. The national average is $1.25, which does not include fees that some banks also charge their customers for using another bank’s ATM.
Occasionally a bank will retract a fee, either due to customer outrage or because it is seen as a barrier to customers using a new, and sometimes cheaper, service. This has become routine for products involving technology: In the past, ATMs were free. Many debit cards still are.
And last week, Bank of America said it is waiving its $5.95 monthly fee for online bill payment in an effort to attract more customers. The bank does not promise the service will be free forever, however.
Banks `making too much’
That type of free-for-now mentality incenses consumer advocates, who say banks charge for services that should be free in an effort to pad their bottom lines.
“They’re making too much in profits, and they’re designing their accounts so that more customers pay more fees,” said Ed Mierzwinski, consumer program director for the Illinois Public Interest Research Group’s Washington office.
Not so, said Jeff Trachtman, vice president of credit and debit card sales and marketing at one of the Chicago area’s leading retail banks, Cincinnati-based Fifth Third Bancorp, which has begun to charge customers 50 cents for debit card transactions when they use their personal identification numbers. All customers can avoid the fee by choosing the “credit card” option when using their debit cards, but then they cannot get cash back.
Trachtman said the new fee could save the bank several million dollars a year, because, after expenses, the PIN-based transactions cost the bank money. Merchants pay banks a much smaller fee when customers make PIN-based transactions than they do for credit card transactions.
Fifth Third customers have caught on quickly to the new rules and are doing PIN-based transactions less than half as much as they used to.
The business case so far has worked at Fifth Third, just as it did for First Chicago in the mid-1990s, when its $3 teller fee was castigated by pundits nationwide but managed to move customers toward ATMs, thus saving the bank money.
Still, consumer advocates and even some bank fee supporters say some banks have gone too far.
“It’s very important to see that banks are trying to become the middleman and make fees,” even where there is no additional service, Mierzwinski said.
Mierzwinski also said banks are not losing money on PIN-based debit card transactions. Further, he believes merchants could raise their prices to compensate if there is a marked rise in the fees they pay banks for debit card transactions that are not PIN-based.
Michael Moebs, president of a research firm that conducts an annual study of bank fees for the Federal Reserve, understands that customers sometimes feel mistreated when banks begin to impose fees for services that had been free.
“For decades banks gave it away, but they’re finding they can’t do that now,” he said.
Some fees called out of line
Still, he finds certain fees–including the $35 per-check fee that one local bank charges for insufficient funds–to be out of line.
“I’d say to consumers, expect fees but expect reasonable fees,” Moebs said. “And look for who has the lower price. The best deal tends to be at small banks and credit unions.”
Some customers have learned that bank fees are unavoidable.
Matthew Dillig, a financial adviser at Merrill Lynch in Chicago, pays at least $12 a month for using other banks’ ATMs, because his financial institution has no ATMs of its own.
“Since they fill the machine and they own it, they should probably get a fee for it,” Dillig said. “But perhaps it should be less.”
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Banking on fees
Charges add up for consumers
Banks have increased many of their fees over the past few years, with some rates going up almost 25 percent.
Note: Fees can vary widely from bank to bank; the amounts shown are national averages.
ATM FEES
Charge for withdrawal at non-network machine*
1996-2000
1996-$2.29
2000-$2.41
* Includes fee from your bank plus surcharge from owner of ATM
LOW-BALANCE CHARGE
Monthly fee for failing to keep minimum balance
1996-2000
1996-$6.34
2000-$7.17
INSUFFICIENT FUNDS
Penalty for bouncing a check
1996-2000
1996-$16.36
2000-$20.22
The bottom line
Twenty years ago, fees made up about one-fifth of a bank’s net revenue. Today, they account for almost half.
Fee income as a percent of net operating revenue
1979: 18%
’80: 20%
’81: 22%
’82: 23%
’83: 24%
’84: 25%
’85: 25%
’86: 27%
’87: 29%
’88: 30%
’89: 31%
1990: 32%
’91: 33%
’92: 33%
’93: 35%
’94: 34%
’95: 35%
’96: 37%
’97: 37%
’98: 40%
’99: 43%
2000: 43%
Sources: Federal Reserve, FDIC.
Chicago Tribune/Drew Sottardi and Phil Geib.
– See microfilm for complete graphic.
