Bank Fees Only One Side of the Story

10/03/2011 6:30 am EST


Terry Savage

Author, The Savage Truth on Money

It’s easy to get angry at banks, and often they deserve it, but they’re getting quite a bit of heat from government regulators. So who’s really to blame? personal finance expert Terry Savage reports.

It’s outrageous that Bank of America (BAC) is going to charge me $5 a month if I use a debit card to access my own money!

And they’re not alone. Wells Fargo (WFC) announced last month that it will test a $3 monthly fee for debit-card users in five states, and Chase (JPM) is testing a monthly fee for debit-card usage in northern Wisconsin, according to

I can really work up a head of steam over this issue, which reminds me of the furor in 1995 when First Chicago (now Chase) decided to charge a $3 fee to talk to a teller in person. That move haunted the bank for years, and the outrage cost a fortune in customer loyalty (though it did succeed in moving people to then-new ATMs).

I can get equally upset that banks are being so stingy with mortgage money now, when it is most needed.

  • And that they refuse simple mortgage refinancing and modifications, which would cost them less in the long run than foreclosures.
  • And that they’re sitting on billions of dollars, and not making it easy for small business to get loans.
  • And that the card-issuing banks are getting, on average, 19% interest on revolving credit-card debt, while they give savers less than one-half of one percent!

Yes, it’s easy to get angry at the banks—large and small—though yes, there’s a difference between them. It’s easy to lump them into the Scrooge category. It’s easy to blame them for getting a government bailout, and then failing to bail out the rest of America.

In fact, it’s too easy. Let’s take a look at the other side of the coin.

It looks to me like the “coin” is standing on its edge. And it’s only fair to tell the rest of the story, which is quite often the story of “unintended consequences.”

Or as I learned many years ago in high-school science class: “For every action there is an opposite and equal reaction.” Some examples:

Debit-Card Charges
These new monthly fees for debit-card use are a direct result of a new law that Congress passed and which went into effect on October 1.

The banks used to make a tidy sum on something called “swipe fees,” which were charged to merchants when you used your debit card. Merchants lobbied against the fees, saying that consumers would get lower prices if Congress restricted the fees. Congress acted.

Before the legislation, the average swipe fee was 44 cents. Now it will be about 21 cents. The limit will cost banks billions in revenues.

Did you think they wouldn’t try to make it up elsewhere? Say goodbye to free checking and debit-card reward programs, and hello to debit-card usage fees.

Mortgage Loans
Here’s another case of “damned if you do, and damned if you don’t” for the banks.

We want them to start making mortgage loans to “qualified” borrowers. After all, what got us in trouble in the first place was their stupidity in making mortgage loans to un-qualified borrowers. (Of course, they were helped by Freddie Mac and Fannie Mae, who were encouraged by the Congress to buy and guarantee these loans—a process which has so far cost taxpayers more than $250 billion in loan guarantees.)

So now, what do we want the banks to do? We want them to make more loans with the money they have made, because they were bailed out—and because the Fed helped keep short-term deposit rates low, letting longer rates stay higher, and helping the banks earn the “spread.”

Well, now the banks won’t have such an easy time earning the “spread” because the Fed is pushing longer-term rates down, too. If you’re a banker and you see future profits eroding—either because of new Congress-imposed fees, or because of the Fed’s tactics—what would you do?

Hunker down on loans and raise fees. And that’s exactly what’s happening.

Look, I have a lot of reasons to get angry at banks. The biggest one is that they have been totally inept—and often acted outrageously, if not illegally—in dealing with the failing mortgage loans that are already on the books.

Common sense and organizational skills could have streamlined the process, allowing a restructuring at current rates to homeowners who would and could still pay on their loans. Instead, banks are left with foreclosed homes on their books, destroying neighborhoods and the market value of their remaining loans.

But it’s far easier to slap the remaining customers with fees than untangle the mortgage mess.

Too Big to Fail
Banks are in business to make money. And we want them to make money, right?

We’ve seen what happens when they are losing tons of money. We bail them out. They are too big to fail. Even the small banks have to be bailed out and taken over by larger banks—thus creating more banks that are too big to fail.

We create incentives by our laws—often without thinking of the consequences. And that’s The Savage Truth.

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