After the financial sector imploded, Congress passed sweeping legislation designed to protect consumers from egregious bank charges. And yet, just a few years later, consumers are paying more for checking accounts, getting less for their debit card purchases and, some say, signing up for expensive "protection" programs just to stop a torrent of bank solicitations.
When reform legislation was being discussed, banks warned they would find ways to make up for lost revenue. And they have. Last year, the number of free checking accounts dropped for the first time in recent history, according to a 2010 Bankrate.com study. The price of an interest-bearing checking account has gone up 21% since 2006. Meanwhile, rewards for debit-card users are dwindling, and a recent report by the Center for Responsible Lending accused banks of aggressively pushing pricey overdraft protection programs on consumers. "They're testing to see how elastic our wallets are," says John Ulzheimer, president of consumer education at SmartCredit.com, a credit-monitoring site.
Banks rarely deny that most of the new fees are a response to the new regulations. "We've looked at the impact of the changing economic and regulatory environment we're in today and we've made changes as necessary," says a spokeswoman for Wells Fargo. A Chase spokesman says the bank is cutting its debit cards rewards "as a result of Durbin," referring to the Durbin amendment to the financial reform bill, which limits how much banks can charge retailers when shoppers swipe a debit card. As a result, the spokesman says, the bank will lose $1.3 billion in annual revenue: "Therefore we can't afford to pay rewards."
Already the government has worked to close some of the loopholes banks have found. In the wake of the CARD Act, which limited credit card interest rate increases and the total fees card companies can charge among other things, banks tested the new limits with new, potentially lucrative promotional strategies and processing fees. Regulators cried foul, and as of October, those moves will become off-limits too.
But some of these fees may be here for a while and tough to avoid, experts say. They primarily target checking accounts the most basic staple of household banking, held by some 90% of American households, according to the Pew Health Group.
In particular, critics are upset about the latest campaign to encourage consumers to sign up for overdraft protection. Prior to the Federal Reserve regulation on overdrafts, which went into effect in August, banks charged checking account-holders a fee of about $35 on average each time a debit-card purchase exceeded their checking-account balance. The new laws require customers to actively choose that kind of protection for debit cards, but critics say banks have been pushing it so aggressively that a healthy number of consumers have opted in simply to stop the advertising onslaught.
"They encouraged customers to sign up for the highest cost overdraft coverage," says Rebecca Borne, senior policy counsel at the Center for Responsible Lending based on a study the center conducted last month. Banks are offering traditional overdraft or linking consumers' checking accounts to a savings account or in some cases to a credit card or a line of credit with the bank. Customers are charged a fee usually around $10 to $12.50 -- per day when they need to dip into those accounts. The banks say they're offering their customers options.
Checking account and ATM fees are also still rising. At the end of May, Bank of America will raise its monthly maintenance fee on its "MyAccess" checking account from $8.95 to $12 for account holders who fall below an average balance of $1,500 or don't make direct deposits each statement period. A spokeswoman for the bank says it's added more benefits to the account, including text and mobile banking and deposit alerts.
And in some cases, consumers now have to pay extra for withdrawing their money at ATMs. In March, TD Bank ended its free-ATM policy; now some customers will pay $2 to use an ATM outside the network. That's partly because there are more ATMs now than there were a few years ago when TD Bank started expanding in the U.S., says Ryan Bailey, head of deposit products at TD Bank. During the same month, Chase charged noncustomers up to $5 to use a Chase ATMs in certain states. The bank, which says it was testing new fees, has since reverted to a $3 fee.
For debit card users, there are more changes to come. Already rewards are less generous than they once were, with more cuts on the way. Now some banks are considering capping the dollar amount consumers can swipe their debit cards for. Chase says it's considering a maximum of $50 or $100 per transaction. That's partly because Chase, like other banks, expects to make less money from debit cards, but they're expecting to face the same costs from stolen cards. "The risk of fraud goes up as the dollar amount goes up," a Chase spokesman says. "The amount of revenue for that transaction stays flat." Citi says it is evaluating potential changes as well.
Still, even as banking gets more expensive, consumers have many more protections now than they did pre recession, says Odysseas Papadimitriou, chief executive at CardHub.com. "Are consumers at a much, much better place now than they were prior to these rules? Absolutely," he says. But it does mean staying firm with the bank against overdraft opt-ins and reconsidering bank accounts. With interest rates low and fees rising, consumers who prefer not to stash a lot of money in their checking account might want to stick with non-interest accounts that on average require a couple-hundred-dollar balance as opposed to thousands of dollars in order to not incur a fee.