Tuesday, October 18, 2011

Despite New Rules, Consumers Can Bank on Higher Fees (October 15, 2011)

If it’s a crime to rob a bank, why isn’t it a crime when banks theoretically rob consumers?
It’s gratifying to live in a free market society, but that shouldn’t give corporations and banks the right to fleece customers every chance they get. Despite robust competition, when one business increases fees, rates or prices, others are sure to follow.
Last month, Bank of America (BofA) announced that early next year it would impose a $5 fee for customers who use debit cards for purchases, but not ATM transactions, in the previous month. (A debit card fee is already being tested in some states by other banks.) While the fee may be negligible, it somehow seems like consumers are actually being charged you for using their own money.
What’s next, a fee every time customers walk into a bank to withdraw cash?
Debit card growth has flourished in the last fifteen years, mostly because banks encouraged their ease, convenience and safety. Plus, a consumer can’t spend more than the balance in a bank account, which reduces potential credit setbacks. It is estimated consumers now use them almost 60 percent of the time rather than withdraw cash from their bank’s ATM in advance of every subsequent purchase.
Recent Congressional legislation limits what banks may charge for certain transactions, such as overdrafts, but this new fee is obviously an effort to compensate for projected losses from those new rules.
The legislation the Dodd-Frank Wall Street Reform and Consumer Protection Act was hailed by consumer advocates, but objectionable to the banking industry, which views any limitations as interference with the free market. Nonetheless, it is estimated the banking industry takes in a whopping $19 billion annually from charges it imposes on merchants every time a debit card is used.
When banks face limitations meant to curb competition that affect profits, they usually resort to eliminating or reducing customer rewards. Remember when no-fee checking accounts were commonplace? Nowadays, it’s rare to find banks that offer that extra without a customer having a substantial balance, which is difficult for cash-strapped consumers to maintain.
The government passed the legislation because it felt it needed to rein in big banks that constantly impose new or higher fees, but BofA is implementing an alternative, though legitimate, means to sustain profits. The debit card fee may only be a start to the end of services banks used to offer for free.
Most banks, so far, have taken a wait-and-see approach and have not announced an additional charge for debit card customers. But, unless BofA sees a considerable loss attributed to the $5 fee, other financial institutions will surely jump on the debit card fee bandwagon.
Few want to see the nation’s banks taken over by the federal government, but if they keep finding ways to raise fees that skirt new regulations, consumers may decide to hide their money under mattresses. And, if that isn’t an option, more Americans may just join the growing protests against banks and Wall Street across the country.
When the Occupy Wall Street protest began, it was essentially ignored as a brief distraction led by a small bunch of disorderly, disgruntled, anti-government activists, who claimed they represented the 99 percent hurt most by the nation’s economic woes, which have left them powerless to get loans, repay debt and businesses reluctant to hire and reinvest, while one percent of wealthy Americans have been a lot less distressed. But that discontent has swelled into a movement that is sweeping the nation and reportedly taking place in over 250 cities and towns.
By the way, a perfect example of how our nation’s contrasting tax code benefits the wealthy, according to the non-partisan Tax Policy Center, is that though they pay some taxes, they significantly benefit from regulations that allow them to pay less, particularly the 15 percent rate on capital gains.
The OWS protests aren’t focused on new and old bank fees, yet the rallies have drawn attention to the public’s general dissatisfaction with financial institutions. They are critically viewed as businesses stimulated and saved with billions of taxpayer dollars and are largely to blame for the current crisis, which has led to lost homes, lost jobs and for some, lost hope. Banks and Wall Street firms have recovered and prospered as they distribute hefty bonuses, but salvaging them didn’t spur a ripple effect down the economic chain and the outlook is still bleak.
Remember the bygone days of Jesse James and other outlaw gangs or Bonnie & Clyde and other Depresssion-era criminals, who, according to legend, sometimes robbed banks to defend perceived social injustice? The current anti-business protests, as well as Bank of America’s debit card fee, make obvious that decades after they earned those notorious reputations nothing much has changed, as our financial institutions operate under a similar, albeit legitimate, premise.