Bank Fees Up Again, Despite Government Intervention

NEW YORK ( MainStreet) -- Just when you thought it was safe to go back to the ATM, bank fees are up again -- even though legislative and regulatory actions by the federal government two years ago sought to curb such costs.

According to the Consumer Federation of America, bank fees are "inching upward" after 24 months or so of level activity.
Bank fees are up again, even though legislative and regulatory actions by the federal government two years ago sought to curb such costs.

The CFA says that timeline is no coincidence. The two-year period of flat fee growth came right after the Federal Reserve enacted a rule making banks get approval from consumers before covering bank overdrafts -- usually for a fat fee.

Before the Federal Reserve rule, banks would transparently cover checking account overdraft fees and sock consumers with an "overdraft fee" of up to $36 per overdraft.

Those fee amounts really haven't changed that much. The CFA reports that the average overdraft fee is $35 per transaction. What has changed, however, is how those fees stack up against many consumers, the association says.

"Big bank overdraft fees for a single transaction are very high, ranging from $33 to $37 at the largest banks," says Jean Ann Fox, director of financial services at the CFA. "Consumers can be charged up to $370 in one day, according to the maximum fee and daily limit fee policies that banks have."

That's pretty much the blueprint for bank overdraft policies today. Banks are targeting habitual offenders and piling up the fees for those customers. A slew of big banks, including U.S. Bank ( USB) and Fifth Third Bank ( FITB) have implemented "tiered" fee policies that rise as overdraft transactions mount.

For example, Fifth Third will pop consumers with a $37 overdraft fee after a $25 "initial overdraft" transaction fee for the first offense. In the past, the bank would charge a $33 fee for the second, third and fourth overdrafts over a one-year period. About two-thirds of big banks surveyed by the CFA engage in higher overdraft fees after the initial infraction.

The amount of the overdraft transaction is another springboard to higher fees, the CFA says. U.S. Bank is planning to charge $15 for any overnight overdraft transaction and $35 for any overdraft following the initial transaction, up from $10 and $33, respectively.

Another key area is unpaid overdrafts. Banks are really getting aggressive about tacking on extra fees for overdrafts that aren't covered by bank consumers. SunTrust ( STI), for example, charges $36 per day after seven days of an uncovered overdraft transaction.

By upping the fee amounts for overdrafts, the CFA says that banks are operating very much like payday lenders, which extend credit to hard-up consumers and charge onerous interest rates and fees. The association calculates that a $100 overdraft at one large bank that went uncovered for two weeks would result in a 2,779% "coverage fee."

" Bank overdraft loans are a form of payday lending," Fox says. "Banks are charging staggeringly high rates for short-term borrowing when fees are computed the same way payday loans are calculated."

Such fees are particularly hard on consumers who can least afford to pay for overdraft costs.

"Banks should not be in the business of charging steep fees for small loans triggered by debit card sales and ATM transactions that can be denied at no cost to consumers," Fox says. "The extreme fee in relation to very small loans that must be repaid in just days to avoid more fees means that bank payday lending is particularly burdensome to consumers who are struggling to make ends meet."

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