Anyone who hasn’t been living under a rock for the past few months knows that bank fees have been rising for some time. While 86 percent of the checking accounts offered by the nation’s 10 largest banks now have monthly fees if you don’t reach minimum balance requirements, according to the Pew Charitable Trusts, there is reason for consumer optimism. A number of major banks recently called off planned debit card fees and other changes to their checking accounts amid a public outcry. Does this mean that we can let out a sigh of relief and that bank fees have finished rising?
The short answer is yes. However, before we get into the rationale for this conclusion, it is important to explain why fees rose in the first place. The root cause can be summed up in two words: lost revenue. More specifically, new rules regarding overdraft fee protections, which took effect in July 2010, and debit card interchange fee regulation, effective Oct. 1, 2011, cost banks upwards of $30 billion in revenue annually. Obviously, as for-profit businesses, banks were going to attempt to recoup these losses, hence the rising fees.
Now, while you might think that this supports the notion that fees will continue to rise, the opposite is actually true for a simple reason: When faced with regulatory changes, banks typically implement strategies to recoup any lost revenue prior to the new rules taking effect. Therefore, banks have already shown their hand, and the most troublesome reactionary measures are on their way out.
What’s more, you might think that banks would try a different approach after debit card usage fees crashed and burned, but that’s not likely either. You see, these fees were about much more than recouping lost revenue. Rather, they were an attempt to kill debit cards and further increase profitability. The so-called "Durbin amendment" – the law that directed the Federal Reserve to cap the interchange fees banks could charge merchants – did not address prepaid cards, so these spending vehicles are far more profitable from a bank’s perspective.
Don’t get me wrong, banks will certainly continue to test new fee structures, as this is common practice in the industry. This simply should not result in a net cost increase for consumers, especially since there will be a downward pressure on prices from banks with less than $10 billion in assets, which were excluded from the Durbin amendment and therefore do not have the same motivation to increase fees as their larger brethren.
Just because bank fees aren’t expected to continue rising doesn’t mean consumers shouldn’t take action to reduce the fee increases already imposed. There may be cheaper alternatives out there for many of you. Your best bet is to try to figure out exactly what fees your current checking account charges and if it is possible to avoid them based on usage. If you feel that your checking account is expensive and there are no ways around the added costs, you might want to check out checking accounts from small local banks and credit unions.
Alternatively, if you don’t mind forgoing the ability to write paper checks, you could consider using a prepaid card as a checking account. Prepaid cards provide all of the other standard checking account features – including direct deposit, online bill pay, ATM use, etc. – and the Green Dot Prepaid Card can serve as a free checking account if you load at least $1,000 per month, according to a Card Hub prepaid card study. Green Dot also has 18,000 in-network ATMs, so withdrawal fees shouldn’t be too much of a concern.
Of course, if you haven’t incurred added costs as a result of the recent hubbub, there’s no reason to go through all the trouble of switching banks. You can simply sit back and track the progress of the fight for better checking account disclosures. According to the Pew Charitable Trusts’ Safe Checking in the Electronic Age project, which began in October 2010, the median checking account has 111 pages of disclosures. This makes it next to impossible to compare different checking accounts or manage your account in such a manner as to minimize fees.
Congress has been ramping up the pressure on banks and the Consumer Financial Protection Bureau to create a standardized, clear checking account disclosure form. At the very least, this is something to keep an eye on.
– Odysseas Papadimitriou is the CEO of Card Hub, a leading credit card comparison website.