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Special section Be free of fees

Credit card and bank fees have hit historic highs. Congress and the Supreme Court helped them get there.

Who's getting rich from fees?

Who's getting rich off fees?

Fees seem to have multiplied in recent years. Either as charges for once-routine services -- such as returning checks with statements -- or as penalties for financial missteps, banks and credit issuers hand out fees for just about everything. With an ever-increasing stable of charges and new and varied ways for customers to incur those expenses, financial institutions' revenue from fees is rising. Is there an end in sight?

Who's getting rich off fees?
Fee income Interest income
$55.2 billion $90.1 billion
38 percent of total revenue 62 percent of total revenue
Source: R.K. Hammer

Who's in charge?
On a national level, credit card companies operate fairly unfettered in regard to interest rates and fees. Even though some states have laws limiting interest rates, federal law supersedes state regulations. Though one state may have consumer-friendly laws, others such as Delaware and South Dakota offer a more hospitable business climate where the sky is the limit. Companies can send cards to consumers from those states to any other state and charge pretty much what they want. An exclusive Bankrate.com survey of the top 20 credit issuers in May 2007 found that some cards charge as much as $90 to transfer balances and $39 for going over the credit limit.

Bounced check fees keep rising
No federal law limits fees banks can levy on checking or savings accounts, either. Take, for example, the nonsufficient funds or bounced check fee.

"A bounced-check fee some years ago, in the early 1990s, was estimated to cost the bank somewhere between $1 and $1.50 including the risk that the check would never be recovered," says Ed Mierzwinski, U.S. PIRG consumer program director. An exclusive survey of the top 10 banks in 10 major metropolitan areas across the country done by Bankrate.com researchers in May 2007 found that NSF fees can cost as much as $38.

"Fees that were formerly alleged to be high because they were having a so-called deterrent value, are now high because they are a profit center," says Mierzwinski.

How much of a profit center fees actually are for banks is open to interpretation. Ross Waldrop, senior banking analyst at the Federal Deposit Insurance Corp., says service charges on deposit accounts (checking and savings), more than doubled between 1996 and 2006, going from $17.3 billion to $36.3 billion. He contends that the amount of money on deposit at insured banks increased proportionally.

"The $17.3 billion back in 1996 represented about 62 cents for every $100 of deposits. In 2006, it works out to about 66 cents for every $100 of deposits," Waldrop says. "If you look at the service charges on deposit accounts as a percentage of the average deposits, there hasn't been a real dramatic change."

-- Posted: June 11, 2007
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