Higher Fees Are Squeezing Consumers out of Mainstream Banking

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By Andrea Luquetta
California Reinvestment Coalition

The five big banks have instituted new fees that cost the average American anywhere from $84 to $144 a year just to maintain a bank account, according to a new report (PDF) from the California Reinvestment Coalition.

The high cost of these basic banking products is pushing people out of mainstream banking and damaging their financial security. By making the costs harder to avoid, banks are hoping that customers opt for prepaid cards, which are exempt from the "swipe fee" (or "interchange fee") limits that were enacted with the Durbin Amendment to the Dodd-Frank Wall Street Reform bill in late 2011.

The report, titled "Checking out: How Big Banks are Pushing Consumers Out of Basic Bank Accounts" (PDF), documents how banks have increased fees that disproportionately burden their least wealthy customers who have been struggling to recover from the economic and unemployment crises. Fees are now charged to customers who do not hold a minimum balance in their accounts (as high as $1,500 a month) or who do not have direct deposit or several accounts with the same bank. The new pricing schemes make even the most innocuous and traditional aspects of basic banking—like mailed monthly statement and service from a bank teller—more expensive. The cost of bank accounts is even higher for customers who stretch every paycheck and therefore are more likely to be charged overdraft or insufficient funds fees. The report also documents how complicated bank policies make the higher costs harder to avoid for even the most careful money manager.

Banks have claimed that increasing fees has been necessary to recoup the revenue that they lost due to new regulations on interchange and overdraft fees that were created to help small businesses and consumers recover from the financial crisis. However, the total profit earned by the five biggest banks is now higher than before the recession. Even after the fee limits enacted by Dodd-Frank and related regulation, Wells Fargo, Chase, Citibank and U.S. Bank are posting larger than pre-recession profits. Even Bank of America and Citibank, which lost revenue in 2009 and 2010 due to the financial crisis, have rebounded.

Instead of offering an affordable bank account product, the big banks have adopted prepaid card programs. Wells Fargo, Bank of America, Chase, and U.S. Bank offer consumers prepaid cards that they can buy directly from the bank and that work exactly like their non-bank competitors’ products. Despite the hype, prepaid cards are part of a secondary tier of financial products that have extremely limited functionality at high prices and limited consumer protections. And, of course, banks can make more money from the consumers who would use them because they are exempt from the interchange fee limits that were codified in the Durbin Amendment.

CRC is calling on banks to offer a reliable and affordable bank account product that supports economic advancement. CRC has designed the SafeMoney™ account as a model of what an affordable, full service and competitively priced account should include. A SafeMoney™ account would provide a debit card, bill pay, money orders, and remittances. To avoid the uncertainty around payment processing timelines, SafeMoney™ does not offer checks and does not allow any overdrafts. It provides customers with accurate balance information to make money management reliable, and, unlike prepaid cards, it provides maximum consumer protections from liability for theft, fraud or unauthorized use.

Banks have knowingly increased bank account fees in order to push their most vulnerable customers out of bank accounts and into prepaid products. Banks need to be responsible players in our economic recovery, and help struggling households keep their finances safe and secure in products modeled after the SafeMoney™ Account.

Andrea Luquetta is Policy Advocate at the California Reinvestment Coalition, and has worked as a litigator at Western Center on Law and Poverty.