Bank Fees Are Hard to Avoid, Especially for Lower-Income Consumers
Study confirms many families are unable to avoid rising bank fees and penalties
Friday, October 19, 2012
There's a lot of talk about cutting the banking fees paid by lower-income consumers but so far it's hard to find anything more than talk.
There are scattered new entrants, like PerkStreet and Simple, that offer free checking and debit cards but they don't have physical branches. So without direct deposit -- something the underemployed often don't have -- it's difficult to make deposits in a timely manner.
And as for established banks, a new study by the Consumer Federation of America (CFA) finds that consumers are having difficulty avoiding rising checking fees unless they directly deposit regular income checks such as paychecks, pension checks, and Social Security checks.
The CFA found that many interest and noninterest-bearing checking accounts require consumers who are unable to maintain average balances of $1,500 -- a large majority of checking customers -- to be charged regular monthly fees that total as much as $300 annually.
Just triggering one debit card overdraft, having one check returned for insufficient funds, and having one deposit rejected could add an additional nearly $100 in charges to the annual cost of using a checking account, CFA found.
This is what happened to Mark of Fort Lauderdale, Fla., who posted on ConsumerAffairs about his recent experience with Bank of America: "I am disabled due to 9/11/2001. I have a fixed income and try to balance the account to the penny. Something went wrong this month, and I was overdrawn $3. The bank charged me $35. This is causing me to get further behind. I called a supervisor who told me I had reached my quota for courtesy adjustment and could do nothing to help."
This is not something that is flying under consumers' radar. We conducted a computerized sentiment analysis of 39,000 consumer comments on social media over the last year and found bank fees about as popular as a Black Plague epidemic, with nearly 60% of the expressed sentiments being negative.
CFA performed research analyzing both bank checking account characteristics and consumer attitudes towards checking accounts as part of their analysis of the 25 largest banks according to the number of branches. The research revealed a great diversity of checking policies and prices at the 25 banks.
For example, the following banks each offer free checking with no waiver requirements – PNC’s “Free Checking,” M&T Bank’s “Free Checking,” First Citizens Bank’s “Free Checking,” Huntington National Bank's “Asterisk-Free Checking,” and New York Community Bank’s “My Community Free Checking” and “My Community Interest Checking.” At the other end of the scale, consumers would have to keep $25,000 in combined accounts at BB&T to avoid paying $25 per month for the Elite Gold interest-bearing account or at Keybank for the “Key Privilege” account.
And while these banks may offer free and low-cost checking, that doesn't mean that every customer benefits, or that the plan always works out as consumers expect. Witness the example of PNC customer Lori, who posted to ConsumerAffairs recently about her experience:
"They constantly reverse sequencing of checks so they can cause overdraft on checks that were previously processed. I have been overcharged huge overdraft fees because of how they reverse sequences. They make sure they process the largest check that will cause all checks that were previously processed to bounce!"
“Banks are increasing fees and balances needed to avoid fees,” Jean Ann Fox, CFA's Senior Adviser for Financial Services noted. “These higher fees and hurdles to avoid fees are especially challenging to the 45 percent of accountholders who maintain low balances and are most likely to overdraw their accounts.”
It should come as no surprise that consumers are annoyed, even hostile, about this state of affairs. This chart shows the top negative and positive emotions expressed by consumers while discussing bank fees:
Examining the verbatim comments that are summarized in this chart, by the way, reveals that the positive emotions are generally related to banks and credit unions that do not gouge their consumers. There were virtually no positive comments directed towards high-fee banks.
An analysis of Raddon Financial Group survey data on consumer checking accounts found that nearly three-fifths (59%) of respondents saw checking balances fall below $500 in a typical month, with over one-third (36%) saying their balances fell below $100. And less than one-quarter (24%) said they had been able to keep balances above $1,000.
The survey found that those with low balances were the most likely to overdraw their accounts. Two-fifths (40%) of those with low balances below $500 said they had overdrawn their checking account in the past two years, while only 3 percent of those with low balances above $1,000 said they had done so. Thirty percent of all respondents said they had overdrawn their checking account in the past two years.
Direct deposits and income
The likelihood of directly depositing income checks was also highly correlated with income. Only 25 percent of those in the lowest income quintile used direct deposit. That figure was 52 percent for the second quintile, 66 percent of the third quintile, and over four-fifths of the upper two quintiles. These differences are important because a large majority of big banks will waive minimum or average balance requirements if income checks are directly deposited at least monthly.
“The families who most need free or low-cost checking are the least likely to be paid by direct deposit, either because their employers do not offer the service, they work in short-term positions, or because they are unemployed,” noted Stephen Brobeck, CFA's Executive Director. “Consumers who cannot waive fees through direct deposit and who do not have a comfortable cushion in their accounts at the end of the month pay the full freight for checking accounts.”
Unfortunately, even those who carefully set up and maintain direct deposits are not immune from high overdraft charges, as Chase Bank customer Natalie of Woodridge, Ill., reported in a posting to ConsumerAffairs:
I feel they are being criminal about their direct deposit practices. My husband would see our deposits go through at midnight Friday night. No other transactions were posted. At 3:00AM, the checks we had written for that week would go through with no problem, as there was money in our account to cover these checks. Then at 5:00AM, we would be hit with two our three insufficient fund fees for three outstanding checks which were already covered at 3:00AM! We were told that direct deposit is not always guaranteed cash so that the fees are our fault. We never had this problem with them for years. This is apparently "a new policy for price gouging". To date, our fees total is $200.
Diverse checking accounts
CFA surveyed checking accounts at the 25 largest banks by number of branches, collecting information on each bank’s budget or all-electronic account, mainstream non-interest checking account and the lowest-cost interest-bearing account. One positive finding of this research is that nearly all bank websites now include both useful summaries of each checking account and also links for fuller descriptions of the accounts including monthly fees, though finding details on overdraft fees and practices sometimes required further searching.
Budget Checking: Nine of the 25 surveyed banks offer accounts described as "budget" or "basic." These accounts cost $7 or less a month even when checks are not directly deposited and any required minimum balances are not met. Most of the free accounts, listed in paragraph 3 of this release, fall into this category.
Electronic Accounts: Bank of America, Fifth Third, and Keybank offer electronic accounts that usually require customers to conduct all banking at ATMs or online. Monthly fees can be avoided, depending on the account, by maintaining a $500 minimum balance or directly depositing income checks.
Non-Interest Checking: Most consumers utilize non-interest bearing checking accounts, which we found at 24 of the 25 banks surveyed. Monthly fees on these accounts, when minimum or average balance requirements are not met, are usually $9-10 but were found to be as high as $15. CFA’s research found that nearly all banks will waive these fees if the minimum or average balance requirements are met which most commonly is $1,500, or if funds are direct deposited. Additionally some banks will waive the fees if a minimum number of transactions occur during the billing-period.
Interest Checking: All surveyed banks offered at least one account that received interest on deposits. These accounts generally are subject to higher minimum/average balance requirements and monthly fees than non-interest accounts. These average balances are as high as $25,000 at BB&T and at Keybank, while the monthly fees are $25 per month at Bank of America, Chase, BB&T, TD Bank, and Keybank.
“As the FDIC’s 2011 Survey of Unbanked and Underbanked Households found, high fees and minimum balance requirements are an obstacle to account ownership for some unbanked consumers, especially for households who had recently been banked,” Fox noted. “Since the FDIC survey was conducted before the rash of fee hikes and higher minimum balance requirements in late 2011, it is likely that rising fees and higher thresholds to avoid fees are a serious barrier to bank account ownership for families struggling in this economy.”
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