Business

The big banks’ heist

There’s a new bank heist going on — and it’s the retail bankers who are holding up their customers. To the tune of 3,250 percent in some cases, according to a new study.

With a rash of new banking rules from credit-card fee restrictions to changes in debit card “swipe fees,” banks have been under pressure to create other sources of revenue to bolster flagging balance sheets.

That’s the contention of the Consumer Federation of America (CFA), which has issued a recent report on the draconian fee practices of the biggest banks in America.

Some banks are charging “staggeringly high” fees to consumers with small checking balances, CFA officials contend.

Even as their customers are suffering from measly interest on their accounts, banks are piling on fees so high that it may be better to leave the money stuffed in a mattress, says the CFA.

Still, a bank-industry spokeswoman criticized the findings on several points: Most consumers today can and do avoid fees, the surveys are limited because they only looked at the biggest banks, and consumers can opt to avoid debit-card overdraft fees.

Nevertheless, CFA said that consumers who overdraw their credit or debit cards are now more likely to be hit with higher fees.

The accumulation of overdrafts can run into the hundreds of dollars in fees, said CFA officials in their big bank report on overdraft loan fees.

“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 for CFA. In some cases, Fox contends, consumers can pay up to $370 in fees in the course of a single day.

When a customer inadvertently overdraws a checking account, the length of the loan can result in huge costs, the CFA report said.

The highest cost for a $100 overdraft loan repaid in two weeks is 3,250 percent, according to the report.

And in this economic climate, with many customers living paycheck to paycheck, making good on an overdraft loan can take some time, according to industry studies.

“Bank overdraft loans are a form of payday lending,” Fox says. She contends that “banks are charging staggeringly high rates for short-term borrowing when fees are computed the same way payday loans are calculated.”

These charges, CFA said, are most commonly levied against customers who don’t qualify for no-fee checking. These are usually people with low checking balances and who don’t direct-deposit paychecks or Social Security payments into an account.

A recent study of late-payment penalties in the Journal of Financial Stability suggests that the biggest banks by market share will tend to charge the highest fees.

And banks have made it very difficult to shop around for the best bargain. By offering direct deposit and online bill payment, banks have made switching far more time-consuming and inconvenient.

But American Bankers Association (ABA) spokeswoman Carol Kaplan said the CFA is focusing on a small group of customers. She notes that most bank customers don’t have these problems.

“Regardless of where overdraft fees are increasing, decreasing or staying the same, the majority of bank customers pay nothing in average monthly bank fees,” Kaplan said.