Banks Still Raising Fees—and Hiding Them: Study

Many big banks still aren't being upfront about their checking-account fees and are even charging more for some basic functions, a new study says.

The study, by Pew Charitable Trusts, said that 12 major banks have shown little progress toward transparency in the past 18 months.

Some fees were not listed at all on bank websites, while others were only available if customers used the websites' search box, said the study, a followup to an April 2011 report.

Even the most common fees, the report charges, are sometimes obscured in long disclosure statements.

“The median length of bank checking account disclosure statements has decreased,” the report said, “but is still cumbersome at 69 pages.”

The battle over banking fees has been building since last fall, when federal regulators capped the amount banks may charge merchants for debit-card transactions. In the first quarter of this year, Wells Fargo saw a 32 percent drop in revenue from debit card purchases from the same period in 2011. At the same time, the cost of keeping deposits has gone up, due chiefly to higher premiums paid to the FDIC for deposit insurance.

Banks have looked to checking fees, especially those for using other banks’ ATMs, and for using overdraft protection to make up the loss, pointing out that customers have to pay for checking services somehow.

But watchdogs like Pew have voiced suspicions that the banks are overcompensating, looking to make profits by driving up penalties unfairly. The report stops short of calling the banks predatory, but it casts doubt on banks’ protestations that the fees are only reasonable.

Yesterday’s report notes, for instance, that some banks let larger overdrafts hit customers’ accounts first, ensuring multiple overdrafts. Banks “can maximize the number of overdrafts by reordering deposits and withdrawals in such a way as to reduce the account balance as quickly as possible,” the Pew researchers wrote.

While focusing on the most common charges, Pew also chides the banks for tagging customers for such exotica as, “empty envelope,”, “bad address,” “online images and photocopy requests” and ‘domestic wire transfer email notification.”

The report cautioned that credit unions, traditionally a refuge from high bank fees, are not necessarily any better than the major banks. Seven of the 12 credit unions studied “reserve the right to order a customer’s transactions from high to low,” the report said.

The report also complained that information about some crucial fees didn’t appear on some credit unions’ websites. The fact that the credit unions don’t charge such fees was no excuse: the lack of a charge should be clear, the report said, for the purposes of comparison shopping.

Pew did find some meager reasons to cheer. The most common fees, penalties for overdraft, are largely unchanged from 18 months ago. And some banks have shown more willingness to disclose information, albeit mostly when they had good news — twice as many banks now advertise that they won’t overdraw your account for a minimum amount—saving you a $35 charge for that $5 cup of coffee, say.

Most overdrafts are closer to $36, however, an amount that immediately kicks in a median charge of $35—or 5,000 percent annual interest on what the bank fronts the customer. Calling that "excessive," Pew makes a recommendation that is remarkable mostly in that it needs to be stated at all: fees, Pew says, should be "proportional to the financial institution’s costs in providing the overdraft loan or to the size of the overdraft itself.”