Banks free to up fees, lose customers

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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?