It was not so long ago that consumers were lured to banks with the promise of free checking and lots of “rewards” to use the debit cards linked to those account. But, as Bob Hope sang – “Thanks for the memories.”
With the financial crisis of 2008 resulting in new legislation signed into law under the Dodd–Frank Wall Street Reform and Consumer Protection Act, the amount of fees banks can charge to customers has been dramatically curtailed on financial products like credit and debit cards. In the past, the promise of free checking lured a lot of customers to the various financial institutions, but it was the fees listed in the fine print in consumer contracts like those linked to credit cards or overdraft policies that were the most lucrative. It was easy for banks to “give away” free checking and reward points. But the Dodd-Frank legislation and the resulting creation of the Consumer Financial Protection Bureau leveled the playing field for consumers and reduced the amount of hidden fees that banks could charge.
In 2009 banks nationwide collected 18 billion dollars in fees and it is estimated that with the new legislation that banks have lost up to one-third of that revenue. Only new fees can fill the void and many banks have quietly gone forward with adding or increasing fees on financial products and services. According to Bankrate.com, last year 65% of 247 large banks and thrifts offered free, non-interest checking accounts, down sharply from 76% in 2009. This year, major banks like Bank of America and Chase have instituted fee increases on checking accounts, overdrafts and ATM services like asking for your account balance. Fees for money transfers and wires have also been established or increased. But they are not alone.
It isn’t just the major national banks that are raising the cost of doing business with them. Some regional and local banks are also getting into the act and nationwide commercial banks have started charging checking account fees of $5.00 – $20.00 per month unless you meet certain criteria, such as larger deposits. These kinds of policies are particularly punishing to small depositors – those who can least afford such fees. As a result many customers have begun to transfer their banking business to local community banks or credit unions offering lower costs, and there are still some commercial banks that have opted against raising fees hoping that it will give them a competitive edge as consumers begin to look for lower cost options.
According to the Consumer Federation of America in Washington D.C., most consumers understand that banks charge fees, but people may not necessarily be able to get a list of fees up front. Banks don’t have to do that for their checking accounts, and there are still major banks that still don’t have their fee schedules on their websites. Many times the fee scheduled is included in your new “welcome kit” after you have opened your account.
Consumers must take the time to compare the local banks, thrifts and credit unions in your area. Ask for a full fee schedule, even if you have to personally visit the bank. Review your monthly statements carefully and read the informational mailings from your bank, where normally new fees are disclosed in the fine print.
Our banks provide us valuable services to manage our personal finances, but just like any other consumer product it makes sense to compare services and costs among competing institutions.
Pamela Sandy, CFP®
CONFIANCE, LLC, Financial & Investment Advisors