New Bank Fees: Another Perspective

[soliloquy76.livejournal.com]

This is a follow-up to the post on the new bank fees being levied by some of America's largest banks. A recent article in the Washington Post's Wonkblog talks about how these fees might actually be a good thing for consumers.

To summarize the issue, the Dodd-Frank act put a cap on the per-swipe fees that banks charged businesses. Every time you use your debit card at a store, the bank charged that store up to 44 cents. Dodd-Frank put a cap of 24 cents on these fees, which is still pretty high considering the actual cost per transaction is only 4 cents. To recoup lost profits, banks are charging consumers up to $5/month if they use their debit card.

On the flip side, this is a huge boon for businesses. From the WP article:

Target, for example, claims the swipe fees are the company’s second-largest expense, following labor. “They are one of Target’s largest single-expense categories. These fees represented hundreds of millions of dollars every year,” Jenna Reck, a Target spokesperson, told me. “We are in a competitive marketplace as a retailer, so any reduction in industry operating costs may likely result in lower prices to consumers.”

Whether or not those savings will make up for the $5/month fee is anyone's guess. It's also anyone's guess as to whether stores will pass these savings on to the consumer, but the benefits could be seen in other places as well. From the same article:

[B]usinesses compete on all kinds of things other than price, and if the cost of using money goes down for business even if that isn’t transferred through price mechanisms there are other ways it’ll get transferred. It may go to wages, it may go to hours, it may go to quality of products, etc. But it’ll go somewhere.

The article also goes on to cite how the new fees might actually be better for the banking system.

Companies routinely get hit with higher costs, by the market or by regulation.... Healthy, smart companies can frequently figure out ways to cope without loudly annoying their customers.

But banks aren’t particularly healthy or smart, especially Bank of America. Check out this two-year chart of its stock. ... If not for the toxic legacy of Countrywide Financial, which Bank of America acquired in 2008, it might not be imposing a fee at all.... In some ways, the imposition of fees is a positive development. The concept of charging customers for a service is actually a more sustainable and intelligent way for banks to do business.

Consumers were paying these fees already at the store. Now they're paying for them directly. The amount (or whether there's a fee at all) is a good indicator of how healthy the bank is, which makes it easier for the consumer to choose. After a few days of research, I found there are plenty of banks that aren't going to charge these fees. I also compared their various ratings, and they tend to be the banks that are in better shape.

If anyone is still banking at Bank of America, Wells Fargo, Chase, SunTrust, or Regions, I'd recommend opening an account at a different bank such as Ally or a credit union, which is not profit-driven. There are lots of resources for finding reviews and other details about the various banks and credit unions, like this one.

Comments

[eracerhead.livejournal.com]

these fees might actually be a good thing for consumers.

Yeah, right. As soon as my bank does this, I'm finding another bank.

[soliloquy76.livejournal.com]

Someone didn't read the OP.

[oslo.livejournal.com]

I agree, generally. Most of the "criticisms" of Dodd-Frank have to do with it compelling switches from one status quo to another, without noticing that a lot of the new arrangements are at least superficially upsetting precisely because they're more transparent to consumers than the previous arrangements. For some reason, a lot of conservatives think this proves that the changes are bad, though they could make an identical argument if Dodd-Frank operated to bar transparent fees (e.g., monthly service charges) and encourage less-transparent ones (e.g., higher swipe fees).

I think that, to the extent that regulations can encourage banks to focus services charges on the front-end of their relationships with consumers - headline monthly fees, interest rates, etc. - it can encourage smarter consumer decisions and more effective competition in the marketplace.

[stewstewstewdio.livejournal.com]

For some reason, a lot of conservatives think this proves that the changes are bad

Something I haven't seen is that there are no regulations that would have prohibited these up front charges. Blaming Dodd-Frank is just another feeble excuse that businesses use to target regulation. The idea of regulation isn't new, and businesses have thrived despite regulation.

[kardashev.livejournal.com]

If anyone is still banking at Bank of America, Wells Fargo, Chase, SunTrust, or Regions, I'd recommend opening an account at a different bank such as Ally or a credit union, which is not profit-driven. There are lots of resources for finding reviews and other details about the various banks and credit unions, like this one.

This. I don't go with any of the major banks.

[harry-beast.livejournal.com]

Maybe the legislation is poorly written or has some landmines in the fine print, but I don't really understand the objection to the idea behind it. It improves transparency, promotes competition in the marketplace and improves access to debit purchases by reducing transaction costs. The only losers are weaselly banks whose business model depends on deceiving and gouging consumers, and if they succumb to the gales of creative destruction, I won't be shedding any tears.

[soliloquy76.livejournal.com]

Consumers tend to be upset because they don't know about or understand the legislation, or how the banking system was working before. Conservatives tend to be along the lines of "regulation is bad." It's certainly a disruption of the status quo, but the status quo wasn't working, especially for businesses and consumers. I think some conservatives are just prone to attacking anything with a Democrat stench on it, too.

[kylinrouge.livejournal.com]

But they have profit quotas to maintain!

[debergerac.livejournal.com]

yes they do, only the government can operate at a loss.

[kylinrouge.livejournal.com]

You see, the government is like a business...

[underlankers.livejournal.com]

Yet another instance of how US corporations are getting more and more like feudal guilds than anything like even corporations elsewhere in the world. >.<

[enders-shadow.livejournal.com]

In addition to Ally or credit unions:
TD bank has yet to fuck me over.

my theory is it's cause they are Canadian.

[harry-beast.livejournal.com]

Your theory is wrong. Royal Bank of Canada, Bank of Montreal and the Bank of Nova Scotia are all guilty of treating their customers like crap.