Starting with Bank of America's disastrous plan to charge customers for using their debit cards last year, fees have become the third rail of the U.S. banking industry.
It's a prickly topic many bankers shy away from even as they hike ATM and overdraft charges to record levels and more checking accounts go from free to fee.
Almost every checking fee Bankrate.com follows went up this year, with some monthly service charges for checking accounts up 25 percent. Banks are dinging account holders 11 percent more for out-of-network withdrawals on top of what the ATM owner demands. And the average overdraft fee rose to a record $31.26, according to the financial research firm.
Consumers are pushing back. In a Bankrate poll, 72 percent of Americans said they would be more open to switching to another bank if their financial institution raised its fees on checking accounts. Citing National Credit Union Administration data, the website NerdWallet (www.nerdwallet.com )said 3 million people jumped from banks to credit unions in the year that ended in June including 76,440 Utahns.
"I was a banker 25 years ago," said Ron Burniske, chief executive of Virginia-based Chartway Federal Credit Union (www.chartway.com), which owns Tooele's HeritageWest Credit Union, SouthWest Community Credit Union in St. George and Utah Central Credit Union in Salt Lake City.
"Maybe I'm old school. But every pricing structure committee I attended was how much can we push the limits before we drive away consumer business. That didn't sit well with me. It was an eye-opening experience," Burniske said.
Bankrate's findings were just the latest salvo against the banking industry. Numerous surveys have found consumers are increasingly unhappy with what they believe are predatory and unfair fees. All the talk of unfair dealing has put banks on the defensive, especially smaller community lenders that say they have held the line on fees. In general, though, most banks agree that federal rules capping debit-card swipe fees and regulations limiting overdraft charges have drawn down revenue they need to defray their cost of providing basic banking services for close to 20 years.
"Our view has been that profits aren't a dirty word. But they have to be reasonable," said Richard Beard, CEO of Bank of American Fork (www.bankaf.com). His bank doesn't charge for checking accounts, helps customers avoid overdrawing their accounts and offers partial reimbursements to customers who use non-network ATMs. Most of the fees it collects are mortgage origination charges.
Howard Headlee, executive director of the Utah Bankers Association (www.uba.org), said Congress overreached in 2010 when it passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which included the controversial Durbin Amendment capping debit card swipe fees. The law was enacted in response to the financial crisis that helped trigger the Great Recession. When lawmakers went after big banks, they hurt community banks, too, Headlee said."
"The irony of it is these are not the banks that created the financial crisis," he said, referring to bank laws. "It creates a vicious circle, in that they pass laws that hurt traditional banks, which hurt customers,which creates more animosity, which motivates people to pass more laws to hurt traditional banks. It's a vicious circle, and it's not good for the economy."
On the other hand, it may be that banks, like the airline industry, are raising fees because their customers won't balk at paying an occasional ATM fee or overdraft charge as long as its loan rates are low, said Richard Evans, a Brigham Young University economics professor.
"One reason why banks might have moved their profit centers to fees is because consumers aren't as sensitive to prices on those kinds of 'oops, I kind of made a mistake' charge," Evans said. "That's my hypothesis."
Banks clearly are sensitive about fees. Bowing to public anger last year, Bank of America scrapped a plan to charge customers $5 to use their debit cards for purchases. So did Atlanta-based SunTrust and Regions Bank in Birmingham, Ala. Wells Fargo (www.wellsfargo.com) dropped plans to test debit card fees in five states. Even though Utah wasn't one of the five, Wells Fargo believes its fees are fair.
"Banking has changed so much in the last five or 10 years," Wells Fargo spokesman Mark Chapman said, noting that checking and savings accounts are accessible online 24 hours a day, allowing customers to make deposits, withdraw cash, transfer money and pay bills electronically via computers and mobile devices.
"It's important to note that we have many different ways that our customers can waive any kind of service fee, and the vast majority of our customers do," Chapman said.
Banks insist they have gotten a bad rap, perhaps rising out of a long-standing distrust and lack of knowledge that many Americans have about financial institutions. With four huge banks, about 50 medium-sized regional banks and close to 7,000 in the U.S., banking is highly competitive, they say. As a result, profit margins aren't fat. U.S. banks earn an average return on equity (ROE) of about 8 percent. ROE compares the profit a company generates with the money shareholders have invested.
Zions Bancorp's return on equity from running its businesses in its latest quarter was just 5 percent. Subtract income from making loans, and the profit margin Zions (www.zionsbancorporation.com) earns on banking products such as checking and savings accounts is just 2 percent, according to James Abbott, who runs the regional bank's investor relations department.
Abbott likes to contrast Zions' profit margin with that of Apple, which in its latest quarter was 33 percent. Few people gripe about Apple or other technology companies that earn hefty margins and big dollars, so why do they complain about banks? he said.
"I understand the banking industry may be viewed as making a lot of money. But there are a lot of other industries making a lot more in dollar amounts, and on a percentage basis, much higher [profit margins]," Abbott said.
Nor is there much differentiation between banks. Generally, the largest banks charge the heftiest fees. By contrast, small lenders such as Bank of American Fork say they still charge little or nothing, bankers say.
"If we charge too little or too much, we will see significant changes in our customer behavior, so we are constantly being mindful of market pricing on both the price that we pay on deposits, the rates that we charge on fees and on fees. They are all related," Abbott said.
Tired of rising bank fees?
Bankers say it's easy for most people to avoid expensive charges for basic services such as checking accounts. The key is behaving responsibly, they say.
While banks have scaled back on free checking, they have become more open to waiving fees, if you do things such as having direct deposit of your paycheck or accepting paperless bank statements.
Don't overdraw your checking account. Sign up for text or email alerts that warn you if you are about to deplete your account. Doing so should eliminate overdraft and minimum-balance fees.
Don't use ATMs that are outside your bank's network.
Don't spread your business among several banks. Lenders are more likely to waive fees if customers have checking, savings and credit card accounts at one bank.
Consider switching from more expensive interest-bearing checking accounts to noninterest-bearing accounts, which are cheaper or even free.
Consider opening an account at a credit union, where fees are lower or nonexistent.
Bank services: What they cost
A survey by financial research firm Bankrate.com released in September found free checking accounts at U.S. banks are increasingly rare.
Only 39 percent of banks offer a checking account with no minimum balance requirement and no monthly fee. That's down from 45 percent in 2011 and off substantially from the peak of 76 percent in 2009.
The average monthly maintenance fee for a noninterest-bearing checking account rose to a record high of $5.48, up 25 percent from 2011.
The average minimum balance to avoid a minimum-balance fee is $723.02, an increase of 23 percent from last year.
The fee for withdrawing cash from an out-of-network ATM reached a record $2.50, up 4 percent from last year. That cost is charged by the ATM owner and the consumer's bank.
The average overdraft charge rose to a record $31.25, up from $30.83 in 2011.