Get ready for fees and more fees.  The banking industry is doing their part in response to the latest credit card legislation that limits their ability to raise their revenue through excessive interest rate increases.  Well, it sort of limits their ability.  Remember, this legislation is far from perfect and does give them some wiggle room. 

Unfortunately, the law does not adequately address fees.   So, this is where banks are going to get their new revenue stream.  In June, led by Bank of America, many of the banks are going to be raising various fees based on account type.   For right now, it looks like overdraft fees could be one of the benefits of an increase in fee.   Overdraft fees have always been big revenue producers for banks.  Overdraft fees represent 74% of banks’ service charges on deposit accounts.  

The debit card is one of the biggest reasons that overdraft fees have become so prevalent.  This is precisely why I don’t like debit cards.  I have always believed that banks rely on human nature to take over, mistakes to be made, and overdraft fees to be charged because of error with the debit cards.   These cards make it easy to make mistakes.  Banks became very smart by giving people overdraft protection. This bank benefit will allow you to go ahead and make a charge on your debit card even though your account might be overdrawn.   So, you could use your debit card multiple times in a day, be in overdraft, and not even know it.  Meanwhile, that Venti Starbucks that typically costs you $2.11 just cost you an extra $30 due to the additional overdraft fee. 

I have heard stories where a consumer would rack up as much as $300 in a single day in overdraft charges.    A recent study of 462 banks by the FDIC found that three quarters of those institutions automatically enrolled customers in fee-based overdraft protection programs, in some cases not giving them the opportunity to cancel.   This is just more abuse that Congress had the opportunity to address and did not do so.  Once again, they are not going to take everything away from their campaign contributors, the banking system.

Don’t feel too sorry for the credit card companies and this latest legislation.  As I said earlier, they will replace lost revenue with new fees.  A recent study showed that only 85% of the banks charge an annual fee.  Well, that is about to change.    If you look at the top 10 banks, they have roughly 540 million credit cards in circulation.  Let’s assume that 85% of them (460 million of those cards) don’t charge annual fees.  A traditional charge of $75 a year would generate additional revenue of roughly $35 billion in new fees each year for the top 10 banks.   It is estimated before any new fee increases that fees are likely to cost consumers $39 billion this year.  

Make sure that you stay informed on changes to the fee structures of your accounts. If they haven’t already started showing up, they are coming.

Tags: Bank of America, banking industry, Bob Brooks, debit cards, Deceptive Money, FDIC, Fees, overdraft fees, Prudent Money