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Banks free to up fees, lose customers

By Claes Bell ·
Wednesday, October 5, 2011
Posted: 4 pm ET

Just when it seems like consumer's outrage meter can't go any higher, a bank steps in and echoes Spinal Tap by turning it up to 11. This week it's Citibank, which is unveiling a $15 per month fee for basic checking.

In the past, banks have allowed customers to dodge such fees by meeting some relatively painless requirements, such as setting up a direct deposit or signing up for monthly bill pay. Citibank bucks that trend by requiring a $6,000 balance in a customer's checking account, or by signing up for big-ticket loan products like a mortgage.

That means, short of keeping an excessively large balance in their checking account or refinancing their mortgage just to avoid a $15 a month fee, customers will likely be stuck paying. And that's bound to make Citi customers hopping mad, and push a lot of them to seek out checking accounts at credit unions and community banks that keep the free-checking fire burning.

The new torrent of checking and debit card fees is so annoying, in fact, it has politicians, including President Barack Obama, calling for the confirmation of a CFPB director so the CFPB can place limits on them. From The Wall Street Journal:

In an interview with ABC’s George Stephanopoulos, Mr. Obama said the debit-purchase fees are "exactly why we need somebody whose sole job it is to prevent this kind of stuff from happening." The decision by Bank of America and other banks to charge debit-purchase fees has sparked outrage among some consumers, and Mr. Obama said he hopes that banks discover on their own that raising fees is not a good business practice.

Mr. Obama suggested the federal government could crack down on fees when banks are treating consumers unfairly. "You can stop it," he said, adding that the government can tell the banks "you don’t have some inherent right just to, you know, get a certain amount of profit, if your customers are being mistreated."

I agree with Mr. Obama that we need a CFPB director, and that Richard Cordray, who has a long history as a strong consumer advocate, is a good choice and should be confirmed. What I don't agree with is Cordray, or any CFPB director, dictating basic checking account pricing to banks.

Yes, monthly checking and debit card fees are annoying, and they're probably going to drive me out of my current checking arrangement and into one with a local credit union across the street. But despite that, I'd have trouble categorizing account maintenance and debit card fees as "unfair, deceptive or abusive," the three criteria the CFPB would use for deciding whether it should crack down on a financial product. The fees are simple, clear to understand, and apply to almost every checking customer, and so, to me, they just don't qualify.

The new fees can't harm you at all if you simply choose not to bank with institutions that charge them. That's the benefit of having thousands of alternatives out there in the marketplace. Instead of intervening to stop national banks from charging the fees, let banks boost their prices, and let the market do the punishing, not federal officials. If the public mood is any indication, that punishment will be swift and strong enough to at least make banks reconsider whether those monthly fees are worth the loss of thousands, or even millions, of customers.

What do you think? Are checking and debit card fees abusive, and thus fair game for regulators, or are they just business?

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Claes Bell
November 10, 2011 at 2:59 pm

James, my point wasn't that banks can be trusted on to act in the best interest of the public. I believe regulation of the banking industry is necessary, but there's a difference between regulating markets to make sure they're transparent and fair, and setting prices. The problem with the latter is that it's extremely hard for a government body to effectively set a price -- either they set the price too high, and people end up paying more than they would have, or they're too low, creating shortages as providers seek to leave what's become an unprofitable business. Setting the price is a last resort you take when you're facing an industry that's been whittled down to just a few providers. Fortunately, banking isn't really like that. Sure, there are a few monumentally big banks, but there are thousands of smaller institutions that thanks to online banking and other technologies, can effectively compete on price with the big banks. That's why, ultimately, despite possible collusion on debit card fees, the big banks had to back off their fees. They tried to increase prices and were undercut by small banks, credit unions, and the big banks willing to compete with them on price, such as PNC and TD Bank.

November 10, 2011 at 1:15 pm

For all those who claim that the in free market, the company and consumer dynamic is one of symbiotic relationship, you are forgetting that the US has masked the way that the large corporations have minimized the "free" aspect of the market through collusion. This is exactly why monopolies were outlawed since the removal of competition allowed the company control the entire market.

When BOA put forth the debit card fee, it was not a coincidence that it was at the same time that other large banks were instituting a similar fee. In fact, BOA advertised this though they might not have realized it. When I called to complain about this new change, the response was simple "every other bank is instituting the same policy".

This implies that there was a strong collusion of the companies to act as a monopoly and agree to raise all the rates across the board and removing the ability of the consumer to have any other options.

For all those who complain about government regulations, just consider what happened in CA when the energy grid was deregulated or look at many of the toxic consumer products which come from China.

yes, there is a such thing as too much regulation but to actually believe that large corporations would act responsibly and the public's best interest is a just naive. The CEOs would make as much money as possible, give themselves larger bonus and then move the money out of the US to avoid any tax liability.

October 08, 2011 at 12:14 pm

All backlash from that ridiculous bank reform act. Thank you Obama!

Martin Harris
October 06, 2011 at 5:24 pm

I agree, Claes. What's more is that as a credit union member, the consumer has access to the credit union Co-op network throughout the US allowing not only use other other credit union's ATM's free (usually), but also shared banking at many other credit unions. The distribution of credit union branches and ATM's is more extensive than any of our nation's largest banks. That combined with internet banking makes the use and convenience of credit unions extremely enticing!

October 06, 2011 at 2:00 pm

A product (or service) is worth exactly what a consumer will pay for it.

If it isn't worth it to the consumer to pay it, they shouldn't. It is not the governments place to decide what we can afford. There are, of course, exceptions- most notably electricity- that are requirements and a consumer generally cannot decide not to use it. Banking is not one of these exceptions.

Debra James
October 06, 2011 at 9:33 am

@Wolverine, you could not have stated it any better. It's up to the consumer to make a stance, and we cannot rely or expect the government to regulate fees where consumers have choice. If we were to go down that road, I'd vote for the government to stop cable companies from making people buy subscriptions to packages that include channels hardly anyone watches; stop allowing ISPs from putting caps on data usage, but not providing the consumer an accurate method to monitor the usage; stop letting wireless companies to continue to charge the same amount even after a subsidized phone has been paid for; and prevent companies like Neflix from raising their prices by 60% and not providing any new features.

I know my wish list sounds ridiculous, and it is. However, the truth is that people may bemoan the fees that these types of companies charge, but still continue to pay them. And, I've yet to hear someone from the White House say the government should stop these companies from taking advantage of the consumer. People have choices, and some of them may be undesirable, such as doing without the service or product. But like you said, the fees will get little resistance from many consumers. What's unfortunate is that the majority of those people will be the ones who can least afford it.

October 06, 2011 at 7:36 am

At some point people need to stop expecting the Government to step in for everything. At some point we have to make a stand and decide "We don't want to pay a fee, we'll take our business elsewhere."

If enough people did that, we'd show these banks that they aren't "too big to fail".

But, banks rely on the ignorance of American consumers, and that's why they stay in business. Many will stay with Citibank just because they don't read email or news or live happily in a state of ignorant bliss until a few months down the line they realize, "Hey, what's this $15 fee I'm getting charged every month?"

15 for a checking account. Ridiculous. But even more ridiculous is he/she that pays this amount... and they will.