The latest news on overdraft fees, overdraft fees and other bank fees from the Center for Responsible Lending.
- Citibank Is Next With a New Banking Fee
Los Angeles Times 01 Oct 2011
As the uproar continues over Bank of America's planned $5 monthly charge for debit card use, Citigroup has been sending letters to many Citibank customers notifying them that they soon will have to start paying for their checking accounts unless they maintain significantly higher balances. Although in many cases that means customers will have to maintain larger balances to escape fees, Stephen Troutner, Citigroup's retail banking chief, says a basic account option makes avoiding charges easier. It is possible to avoid fees on that program by maintaining a combined $1,500 balance in checking and savings accounts, or by setting up a checking account with direct deposit of paychecks and at least one automated bill-payment service. Citibank has decided not to impose "usage" fees such as the $5 a month that Bank of America, starting next year, will charge most customers who use their debit cards to purchase goods and services. "We conducted extensive surveys with our customers, and no one wanted to pay to use debit cards," says Troutner.
- Banks Plan New Fees for Using Debit Cards
Wall Street Journal 30 Sep 2011
Bank of America's decision to charge customers a monthly fee for making debit card purchases is the latest example of the banking industry's response to the heightened regulatory climate. Several other large banks, including JPMorgan Chase and Wells Fargo, are testing or plan to test similar fees in some states. New federal limits on debit-card "swipe fees" are expected to cost U.S. banks an estimated $6.6 billion a year in lost revenue. To offset that lost revenue, many banks have eliminated or scaled back debit-rewards programs, added monthly fees for checking accounts and raised minimum balance requirements for customers to avoid certain fees. As banks were lobbying against some provisions of last year's Dodd-Frank financial-reform legislation, they warned that the new rules would force them to raise fees on some products, hitting consumers with higher costs. Trish Wexler, a spokeswoman for the Electronic Payments Coalition, a trade group that represents Visa, MasterCard, and several large banks, says the new fees are an "unintended consequence" of the new rules.
- Capital One Should Keep the ING Overdraft Program
MyBankTracker.com 29 Sep 2011
ING Direct's overdraft line of credit is considered a consumer-friendly option by the Center for Responsible Lending, which believes it should be sustained in the event that Capital One's takeover of online bank is successful. In testimony before the Federal Reserve Board, CRL's Kenneth Edwards backed the policy. "Safeguards should be in place to ensure the preservation of ING Direct’s model program as well as to encourage improvements in Capital One’s current practices," he stated. The proposed acquisition of ING Direct would make Capital One the fifth-largest bank in the country. The possible repercussions of becoming another "too big to fail" institution have warranted concern and scrutiny by the government and industry groups. CRL believes that Capital One remains antagonistic toward consumers while other banks have revised their practices following new regulations in the past few years. "We are concerned that Capital One's current overdraft practices are out of step with significant reforms other large institutions have recently implemented,”" Edwards said. Capital One continues to charge steep overdraft fees on debit card point-of-sale transactions, while Bank of America and Citibank no longer charge overdraft fees on such transactions. Instead, these big banks will either reject the transaction or let customers link their checking accounts to a savings account or line of credit to cover non-sufficient funds.
- SunTrust, M&T Win Delay in Overdraft-Fee Cases During Appeal
Bloomberg 28 Sep 2011
Four banks -- SunTrust, M&T, Regions Financial, and Branch Banking & Trust -- accused of gouging customers on overdraft fees won a delay of lawsuits against them while an appeals court considers whether the plaintiffs have to go through arbitration. U.S. District Judge James Lawrence King in Miami put the case on hold as the U.S. Court of Appeals in Atlanta reviews his Sept. 1 decision allowing the plaintiffs -- customers with debit cards attached to their checking accounts -- to proceed with their lawsuits. King had rejected the banks' argument that the customers were legally bound to arbitrate the dispute. Arbitration agreements for the banks are “unconscionable” and cannot be enforced, King said in his opinion. The litigation before King involves more than 30 banks sued over their overdraft-fee policies. The customers claim the banks reorder debit-card transactions in their computers to maximize overdraft fees. Bank of America in February agreed to pay $410 million without admitting liability to settle an overdraft lawsuit brought by its customers.
- Denver Is No. 1 in ATM and Bounced-Check Fees
Denver Post 27 Sep 2011
According to Bankrate.com's 2011 checking study, the highest ATM surcharges and bounced check fees in the country can be found in Denver. The city's average ATM surcharge is $2.75, 15 percent higher than the U.S. average; and its overdraft fee is $33.50, 9 percent higher than the national average. Other cities with ATM fees above national levels include San Diego, Houston, Seattle, and New York; while Miami, Houston, Dallas, and Philadelphia are among the cities whose fees for insufficient funds exceed the norm for the rest of the country. The Bankrate study also found that the new national average ATM surcharge of $2.40 is up 3 percent from last year's $2.33. Additionally, the countrywide average for overdraft fees, $30.83, is up 1 percent from $30.47 in 2010.
- Union Bank Email Show Overdraft's Seedy Underbelly
American Banker 27 Sep 2011
While banks have long claimed that processing debit card transactions from the highest value to the lowest benefited customers, documents revealed during a federal lawsuit against Union Bank of California show that the method is used as a way to pump up revenues. CAST Management Consultants, a vendor of "high-to-low" debit transaction processing software, promised the bank that by processing customers' daily checking and debit transactions based on the highest to the lowest dollar values -- instead of in the order in which they were made -- it would significantly increase the fees that customers pay for insufficient funds. According to an amended class-action complaint, Union Bank eagerly signed on and worked to ensure that consumers never found out. The banking industry claims the high-to-low processing was legitimate and actually helped customers who wanted their largest bills paid first. Of the many similar cases against other big banks, some have been settled out of court, while others could be moved to industry arbitration panels. But documents filed in the Union Bank case appear to paint a picture of a financial institution focused on maximizing fee revenue by using the technology, while dismissing employee concerns that resequencing payments was unfair and possibly illegal. Union Bank says its overdraft practices were in line with those of its peers. The bank ended its high-to-low policy last year.
- Annals of Management Consultancy Advice, Overdraft-fee Edition
Reuters 27 Sep 2011
While banks have been ordering customers' transactions from high to low for years, some banks even paid consultants to tell them how to do it. Union Bank of California hired management consultancy CAST to show it how to tip customers into the overdraft zone as quickly as possible by prioritizing their largest payments. CAST told the bank that its fee income would increase by performing such actions. During the discovery phase of a class-action suit against the bank, it turned over documents to the plaintiff's attorney that indicate the bank agreed to pay CAST 20 percent of any extra overdraft charges generated under its high-to-low system. CAST estimated that Union Bank would grow its overdraft revenue by nearly 25 percent, or $18 million. But during its first year, the bank's overdraft revenue grew by $33 million to a total of $125 million. The system stayed in place for six years.
- Charges on Checking Accounts Rise to Recoup Revenues Lost to Lower Card-Swipe Fees
Washington Times 26 Sep 2011
A study by Bankrate has found that only 45 percent of standard, non-interest checking accounts are free, down from 65 percent last year and 76 percent two years ago. Meanwhile, the average monthly charge for interest-bearing checking accounts is $14.15, up 8.5 percent from $13.04 last year. The balances required to avoid such fees jumped about 44 percent to $5,587, from $3,883 last year. Richard Hunt, president of the Consumer Bankers Association, warned of this when Congress passed a bill to reduce swipe fees that merchants pay to banks when a consumer pays with a card. They have to make up the lost revenue somehow, he said, so they are looking at higher fees and even creating new ones. “Each bank’s going to have to do what they have to do to stay in business,” he said. “The vast majority have no choice but to raise revenue through checking accounts."
- Like Your Free Checking Account? Prepare to Say Goodbye
USA Today 26 Sep 2011
Free checking accounts have been widely available to consumers for some time, but that could be changing. According to a recent survey by Bankrate.com, only 45 percent of non-interest checking accounts are free today -- down from 65 percent in 2010 and 76 percent in 2009. Many banks are adding fees to recover revenue lost from federal regulation that caps debit interchange fees. The poll found that only 2 percent of banks and thrifts currently charge a monthly debit card fee, but some large institutions have announced that they soon will charge a fee. Many banks will waive debit and checking account fees if consumers have direct deposits and a minimum monthly balance. However, the threshold has skyrocketed in the past year, with the average minimum balance required for a free checking account now at $5,587 -- up 44 percent from 2010. Some consumer advocates believe that the new fees could cause more customers to shop around.
- Debit Fee Cuts Could Boost Credit Card Use -- Fed
American Banker 26 Sep 2011
According to a Federal Reserve Bank of Boston research paper, new regulations reducing debit card interchange fees are causing some banks to charge customers more for using debit cards -- which, in turn, could result in customers ramping up use of their credit cards. While explicit debit card fees have not been the norm, Boston Fed policy adviser Joanna Stavins said it is "feasible" that banks will begin to add fees or per-transaction charges in an effort to recoup lost interchange revenue. The Fed's July 29 ruling will limit the fees that merchants pay to banks when customers make a purchase with their debit cards. The fees will drop to between 21 cents and 24 cents per transaction, down from 44 cents on average currently. In an attempt to make up for losses in the field, some big banks have already begun to charge customers for checking accounts or related debit cards. However, the rise in debit card fees could cause more consumers to use their credit cards, as there will be no fee attached to that card. "It is reasonable to expect that an increase in the cost of debit would lead to an increase in the use of credit cards," Stavins concluded.
- Debit or Credit? Citi Places Its Bet
Wall Street Journal 20 Sep 2011
Citigroup mailed an estimated 346 million credit card offers to North American customers in the third quarter, according to figures from Mail Monitor -- more than one for every man, woman, and child in the United States. One in three credit-card offers that landed in consumers' mailboxes last month came from Citi, Mail Monitor estimates. The postal blitz is expected to make Citi the largest mailer of credit-card offers, ahead of longtime industry leader Chase, for the first time in eight years. It shows how Citi is trying to regain ground ceded to rivals after losing hundreds of millions of dollars on credit cards following the 2008 financial crisis. In its efforts, Citi is betting that customers, alienated by charges being imposed on debit cards, will turn to credit cards instead.
- Citi Raises Checking Fees, Cuts Debit Rewards
American Banker 19 Sep 2011
Citigroup Inc. is hiking the fees it charges customers for its rudimentary checking accounts and will no longer reward them for using its debit cards, in the wake of new rules limiting debit interchange fees. Beginning in December, Citigroup will charge customers $10 a month for a basic checking account, up from $8 a month currently. The New York-based bank also said it had made "the hard decision to stop giving reward points for debit card transactions," according to a Sept. 16 press release. The largest U.S. banks have largely scrapped free checking since last year, when the Dodd-Frank financial reform law cut the revenues that banks earn from processing debit card transactions. As a result, nearly two in three large banks have added fees, discontinued rewards programs, or altered the terms of their checking accounts, according to a recent survey by Moebs Services.
- Consumer Bureau Targets Checking Overdraft Fees
Chicago Tribune 19 Sep 2011
A controversial new federal agency is targeting a consumer pariah: checking account overdraft fees. The de facto head of the Consumer Financial Protection Bureau, Raj Date, said in a speech in Philadelphia in mid-September that the new regulator is going to begin scrutinizing overdraft programs with the goal of clarifying the cost of free checking accounts. "With these free checking accounts, much of the costs to the consumer were buried in overdraft fees," said Date, special adviser to the Treasury Secretary on the consumer bureau. "Going forward, the bureau will carefully assess how we can best ensure that the overall market for short-term credit is fair, transparent, and competitive." Date -- who is running the consumer bureau as it anticipates the confirmation of its first chairman -- said that one of the CFPB's first major decisions could be establishing guidelines for banks to make sure consumers understand what they are doing when they accumulate overdraft fees.
- Regions Adding Debit Card Fee
Jackson Clarion-Ledger 17 Sep 2011
Mississippi-based Regions Bank has announced that it will soon join the growing number of banks across the country that now impose a monthly debit card fee. Beginning on Oct. 1, Regions customers with entry-level LifeGreen Checking and Basic Checking accounts will incur a $4-per-month debit card fee per account they have with the bank. The charge will be applied for point-of-sale purchases, but not for use of the ATM. A number of banks have been making the change due a provision in the 2010 federal financial reform law that capped swipe fees charged to merchants from an average of 44 cents to about 25 cents. "Regulations have changed and, as a result, we and other banks are adjusting how we cover the costs of providing debit cards," said regions spokeswoman Evelyn Mitchell. Regions customers who had free checking accounts also could face a $10 monthly maintenance fee if they do not have a $1,500 average monthly balance or at least one direct deposit of $500 or more each month. Mitchell says that customers are free to switch to other accounts if they are unhappy about the debit card fee changes, but other checking accounts with the bank have monthly fees of $12 to $20.
- Wells Fargo Tests Debit Card User Fee Outside S.D.
Madison Daily Leader 09 Sep 2011
Larger financial companies like Wells Fargo are beginning to test limited markets with a debit card user fee. Staci Schiller, a Wells Fargo spokesperson for the South Dakota region, said the $3 per month debit card activity fee is being tested for customers who opened accounts in Oregon, New Mexico, Nevada, Georgia, and Washington. She said the fee is triggered if a customer makes a debit card purchase, but it does not apply to ATM withdrawals. The once-monthly charge is not based on the number of transactions made. This new fee comes in response to lower interchange fees that take effect Oct. 1 for cards associated with banks with assets of $10 billion or more.
- Consumers, Banks Face-Off Over Fees
Smart Money 08 Sep 2011
Consumers are getting increasingly angry over the expanding schedule of bank fees they are being hit with, and some are questioning whether the fees are justifiable. A new survey from the marketing firm Russell Herder finds that greater than 70 percent of consumers polled consider bank charges are unfair, and 90 percent say their financial institution could have more clearly communicated the fees they charge and what triggers them. The findings of the survey, which encompassed more than 500 bank and credit union checking and savings accounts, also suggested that customers still do not understand why they are charged certain fees. To the contrary, banks say most consumers manage to evade fees. A recent industry-sponsored survey by Ipsos Public Affairs shows that 71 percent of bank customers pay zero fees, while 11 percent pay $3 or fewer.
- The Best Banking Deals for College Students
SmartMoney 07 Sep 2011
Banks have been wooing college students, pitching products that feature better terms. Among them are longer zero-interest promotional periods and better rewards programs on credit cards; no-fee checking accounts, which excuse students from direct-deposit requirements and save them from having to maintain a minimum balance; and more flexible debit-card rules that, for example, give students more leeway when using out-of-network ATMs. In most cases, these and other incentives are tied to credit cards and checking accounts that the banks have tailored exclusively for students. There is a lack of data on the growth of products specifically targeting students, but banking experts say the number of deals is growing and will continue to do so.
- SunTrust, M&T Customers Win Court Ruling on Overdraft Fees
Bloomberg 03 Sep 2011
Customers of SunTrust Banks, M&T Bank, and two others are being permitted to use federal courts instead of arbitration to pursue claims that the financial institutions overcharged them on overdraft fees. According to a ruling from U.S. District Judge James Lawrence King, customers with debit cards linked to checking accounts are not required to use arbitration rather than class-action lawsuits. The banks had argued that a U.S. Supreme Court decision in April related to AT&T customers' class-action suit set the precedent on arbitration agreements. But King said the arbitration agreements by the banks are "unconscionable" and cannot be enforced. The litigation involves customers at more than 30 banks that were sued over their high-to-low transaction processing policies, which customers claimed allowed the banks to maximize overdraft fees.
- What Regulators Have Proposed for Overdraft Fees
South Florida Sun-Sentinel 02 Sep 2011
The federal watchdog for national banks and thrifts has drafted updated rules on overdraft charges. The proposals would mandate a grace period of at least one day for a customer to add more money to an account before an overdraft fee is levied; that withdrawals be processed in an order not "solely designed or generally operated" to maximize fees; and that customers opt in for overdraft coverage on checks and wire transfers -- not just for transactions involving automated teller machines and debit card charges.
- Consumer Groups Say Overdraft Fees Still Too High
South Florida Sun-Sentinel 02 Sep 2011
One year after Congress aggressively went after overdraft fees, consumer advocates say banks are still imposing egregious fees to customers who overspend the cash available in their accounts. The median overdraft fee at the country's 14 largest banks, $35, remains unchanged from 12 months ago, according to a study conducted in June by the Consumer Federation of America. In total, national banks and other lending institutions will collect an estimated $38 billion in overdraft fees this year -- up from $35 billion in 2010 and from $31 billion in 2006, consumer watchdogs say, referencing estimates from economic research firm Moebs Services. Federal bank regulators are shaping new rules on overdraft fees, but many consumer advocates complain that the proposed rules still do not go far enough. For example, many of them would like to see banks blocked from manipulating the order of customer withdrawals from the largest amount to the smallest -- a practice that generates additional overdraft fees.