Like a ferocious beast lurking in the dark shadows, rising bank fees are back and are trickier than ever.
When Bank of America shocked the country with it’s announcement to charge its customers a $5 fee for debit card usage, consumers responded with a resounding “no” by moving their money to credit unions. Bank Transfer Day was a groundbreaking success, driving customers away from being assaulted by unreasonable bank fees to a credit union.
Although the National Credit Union Administration reports a rise of more than 1.3 million new members in 2011, herds of angry bank customers have tapered off. No big bank fee announcements have been made and instead banks have gotten sneakier after the Bank of America smack down last fall.
As a result, bank fees have continued to creep upward after being level for 24 months, says the Consumer Federation of America. Why the increase? The CFA says that fees began inflating shortly after the Fed announced that financial institutions must have contractual approval from the consumer before being able to cover overdrafts. Overdraft coverage, sometimes called “courtesy pay” or “overdraft privilege” has provided the industry with significant non interest income for years, which now has put a strangle hold on many bank’s lifeblood source.
Making a checking account “oops” at a credit union would typically garner a fee if the member optioned into the credit union’s courtesy pay program, but hardly enough to make a significant dent. On the flip side, today’s big bank fees for overdraft “oops” could possibly feed a family of four at McDonalds.
"Big bank overdraft fees for a single transaction are very high, ranging from $33 to $37 at the largest banks," says Jean Ann Fox, CFA director of financial services. "Consumers can be charged up to $370 in one day, according to the maximum fee and daily limit fee policies that banks have."
Mounting hidden fees for using overdraft protection have some industry experts referring to bank programs as the new payday loan.
“Bank overdraft loans are a form of payday lending,” Fox says in a news release. “Banks are charging staggeringly high rates for short-term borrowing when fees are computed the same way payday loans are calculated.”
In addition to the overdraft protection fee, some banks are adding other stiff fees if the amount isn’t paid back within a certain time frame. A Pew Charitable Trusts report points to a 32% increase in this type of fee since 2010.
Credit Unions Are Handling Fee Changes with Transparency
Instead of hiding fee adjustments, credit unions are coming out with letters and explanations not only as to why some fees are being adjusted but also providing a direct email or phone number to the CEO.
Two perfect examples include Alameda Credit Union ($35 million, Alameda CA) and InTouch Credit Union ($854 million, Plano, TX). Like many financial institutions, the need to cover rising overhead costs meant that fee adjustments had to be made. However, instead of hiding fee increases, both of these CEOs issued explanatory letters, discussing how the financial crisis has put a strain on resources and what the credit union planned to do in response.
When Alameda Credit Union had to start charging a $6.00 monthly fee for checking, CEO Donald H. Winstead issued a letter to all checking account holders detailing why the credit union was going to start charging a fee and reassuring members that once overnight rates increased the fee could be reduced or removed. The letter also explained what the member could do to have the fee waived and invited members to contact Winstead or any executives directly regarding the new fee.
Similarly, Kent Lugrand, President/CEO of In Touch Credit Union discusses the frank reality of fee increases and adjustments in his monthly column, “The Corner Office.” The April/May column, “To Fee or Not to Fee… it is no longer a choice!” lays out the reality of fee increases in the financial world acknowledging that fee increases are never pleasant but that economics are making decisions for many credit unions.
Lugrand goes on to explain how fee adjustment decisions are never taken lightly and what it might cost a credit union to cover operations.
“For example, a member with a savings account, paper statements, home banking, moneyline, and mobile banking costs ITCU approximately $50 per account per year to deliver,” he writes. “At today’s guaranteed Federal Reserve investment rate of 0.25%, it takes a savings account balance of $20,000 or a loan balance over $4,000 to generate enough earnings just to cover the annual expense for those free services.”
“And the most expensive account we offer - free checking - with the related costs of free bill payment, debit cards, ATM transactions, check printing, security and transaction clearing, averages between $75 and $135 per year depending on transaction volume,” he continues. “The Credit Union has no choice but to pass more of the service expense directly to members.”
Following Lugrand’s letter is a list of fee changes, along with ways to avoid the fee and why the fee is being imposed. Lugrand’s email address is displayed prominently at the top of his column as well.
If your bank statement shows that you are paying far too much in fees, find a credit union and conduct a fee comparison.