It's Gonna Cost Ya.
Bank fees make poverty an expensive proposition
By Alex De Grand

After a while, it adds up to real money.

Especially the way some of the fees are implemented. If you don't have the money to keep a minimum balance, why would it seem like you can afford to pay a $7 low-balance fee?

It's unlikely you'll get a toaster for opening a checking account these days, but you can get a heaping helping of fees and aggravation.

Who can't get enough of that?

Apparently not the banking industry. The industry has been steadily escalating fees for checking, ATMs, and all kind of other services it can think of.

As the banking industry marks consecutive years of record-setting profits, the consumer-advocacy group U.S. Public Interest Research Group estimates 12 million American families can't afford bank accounts.

Kentucky does not have any statutes or regulations governing bank fees. And recent court rulings striking down state attempts to control bank fees is unlikely to encourage legislators to buck the status quo.

According to the Legislative Research Commission in Frankfort, the last legislator to propose state controls over bank fees was Sen. Pat McCuiston of Christian County about 10 years ago.

The LRC reported McCuiston's proposal would have given the commissioner of the Department of Financial Institutions the power to set bank fees. The legislation didn't go anywhere, according to the LRC.

McCuiston, who left the state senate in the early 1990s, points out he was a banker himself who served a rural community. Many of his customers weren't those super-affluent people banks drool over.

"Banks have a lot of accounts that don't make money," he said. "But not every business makes money off everything... Banks should be aware of the public service they provide. I think banks should be more considerate of lower-income people."

The Kentucky Bankers Association could not be reached for comment by press time.

Lawmakers to banks: Don't be so grabby

While no sweeping laws governing bank fees have made it out of the starting gate in Kentucky, there are some smaller measures to note.

In March, the state House of Representatives voted 87 to 6 in favor of a resolution asking Kentucky banks not to charge fees on checks issued for payment of jury service.

House Majority Whip Joe Barrows said he filed the resolution after he was contacted by Lexington resident Ed Loman.

Loman complained people without National City Bank accounts were charged $3 when they cashed their jury payment checks at some National City Bank branches even though those checks were written off an account at National City Bank.

The practice lit a fire under Loman.

"Lots of people have said, 'You're worried about $3, Mr. Loman?'" he said. But it was the principle that offended him.

"My staff did a little checking into it and I agreed it was a silly thing to do," Barrows said of charging a juror without an account for cashing the check at the bank that issued it.

Barrows explained a bank should know the jurors' payment comes from a government account that is in little of danger of check-kiting.

Jury duty is a vital public service that ensures the smooth operation of the judicial system, but it doesn't pay much and many people are reluctant to do it, Barrows said.

"The notion of taking a portion of the relatively paltry juror's salary didn't make sense to me," he said.

"Any bank should be public-minded enough to make an exception [for jury checks]," Barrows said.

Terri Wilson, a spokeswoman for National City Bank, said the company does recognize the value of jury service and is willing to make an exception. Wilson added the fee is aimed at discouraging non-customers from tying up the bank's tellers, making the bank's regular customers wait in long lines.

Barrows said he understood officials in Fayette County will address the problem, entering into a contract with a bank that will guarantee no charges to cash checks drawn on the clerk's account.

"I figured that would address the [particular] concern, but I didn't know if it was going on elsewhere in the state so I filed the resolution," Barrows said.

Barrows said he chose to submit a resolution that asks banks to voluntarily stop charging service fees on juror checks-rather than a law so he could avoid the complicated legal questions surrounding state regulations.

Barrows' hesitation to wade into those murky areas of the law is probably justified given recent events.

There oughta be a law (and why there isn't)

In California, the cities of Santa Monica and San Francisco suffered setbacks when the 9th U.S. Circuit Court of Appeals ruled last month that federal law bars those local governments from banning ATM surcharges.

Nine states - California, Connecticut, Iowa, Oregon, Minnesota, Nevada, New York, Washington and West Virginia - have backed Santa Monica and San Francisco's efforts to ban surcharges.

Also last month, the U.S. Supreme Court let stand a ruling from the 8th U.S. Circuit Court of Appeals that said state law aimed at controlling ATM fees was overruled by the National Bank Act.

A national bank is a creation of the federal government and the states are limited in what they can do to restrict the ability of the national bank to do business in different places, lawyers for the banks argued.

Iowa held the National Bank Act required national banks to comply with state laws governing bank branches. The appeals court ruled while the National Bank Act does require bank branches to conform to state laws, an amendment to the act specifies an ATM is not a branch.

On the national front, an effort by Sen. Al D'Amato (R-NY) and Rep. Bernie Sanders (I-VT) to ban surcharges went nowhere.

Banks strenuously object to all these efforts, portraying them as government and consumer groups's intrusion on the free-market. Banks maintain that surcharges are necessary for buying, installing and servicing ATMs. Without the charges, ATMs would become less available and small rural communities would be especially hurt, according to them.

Consumers who are using another bank's ATM are doing so for convenience and they should have to pay for that convenience, the banks argue. Consumers can avoid the fees if they just stick to their own banks' ATMs, the industry notes.

Proponents of surcharge regulations don't buy the banks's claims to free-market rationales.

Large banks are using their ATM networks and the attached escalating fees as an anti-competitive tool for bullying customers into patronizing them instead of smaller competitors, they argue.

As these two sides wage all-out war, the banks continue to ratchet up the fees and rake in the cash.

Let's go to the numbers

The U.S. Public Interest Research Group reported banks in 1998 cleared nearly $62 billion in profits, the eighth straight record year. PIRG cited numbers from the Federal Deposit Insurance Corporation showing deposit account and ATM surcharge fee income are important parts of those increased profits.

The FDIC reported income from service charges on deposit accounts has risen every year from 1989 to 1998. If you're one of those who has to be shown the money, that is $10.3 billion in 1989 to $19.8 billion in 1998. Those figures don't include ATM surcharge revenue which is in "other non-interest income," a category that has grown from $29 billion in 1989 to $77 billion in 1998.

PIRG looked at the various ways fees have been jacked up and restructured to maximize income.

For example, their survey found the average monthly maintenance fee for consumers who fail to meet a minimum balance to be $7.76 in 1999 - up from $7.65 in 1997 - at the big ol' mega banks and from $6.90 in 1997 to $7.12 in 1999 at smaller banks.

At the same time, PIRG notes, the banks have raised the threshold to trigger those fees.

The average balance required to avoid fees at a mega bank increased 3 percent to $1,357 in 1999 from $1,321 in 1997. At smaller banks, the average balance to avoid fees increased 9 percent to $1,093 in 1999 from $1,007 in 1997.

Findings from the PIRG report are supported in other market surveys.

A study by bankrate.com documented a jump from an average monthly service charge of $7.55 in March, 1999, to a little more than $7.85 by October, 1999.

Like PIRG, bankrate.com also charts a steady rise in the average balance threshold to avoid fees, rising from around $1,125 in October, 1998, to a little under $1,300 in October, 1999.

The Empire Strikes Back

For their part, the American Bankers Association denounces the PIRG study on its webpage as "incredibly misleading and exaggerated."

The ABA says its own survey found more than half of consumers spend less than $3 a month for bank-related services.

An indignant ABA also refutes PIRG's statement that fees on deposit accounts are a big part of the bank profits, asserting they only represent about 4 percent of total bank revenue. The big areas of growth are loans, mutual fund sales and loan securitization, the ABA said.

But a number of industry observers have criticized the ABA's figures on account fees as "self-serving" and perhaps misleading.

Sheshunoff Information Services Inc. noted in its 1997 market survey that banks have tiered services with only the very skimpiest of account services (the euphemistically termed "economy checking") coming in around $3. "Regular checking" and "interest-bearing checking" clocked in at $6 a month and $7.71 a month, respectively.

PIRG challenged how upfront banks are with their fees, charging them with hiding fee increases by unbundling services formerly included in monthly maintenance fees.

"Since PIRG began conducting bank fee surveys in 1993, two key services have been unbundled from monthly maintenance fees - canceled check return and ATM cards," the survey states.

"In 1999, when fees for return of canceled checks and monthly ATM card use are added to monthly maintenance fees, the increases are dramatic. In 1999, big banks charged a fully loaded monthly maintenance fee of $8.56 and small banks charged $7.46."

The ABA responds, PIRG "assumes a series of worst-case scenarios that numerous bounced checks and other exceptional charges" to make its claims.

"The fact is consumers today are smart about their relationship with their financial institutions," the ABA asserts.

"The change in the pricing structure works in favor of consumers who shop around for the banking services that best suit their lifestyles," the ABA argues.

Ironically, "shopping around" is a way to incur another fee, according to PIRG, who report an "early account closing fee" is growing in popularity among the banks.

These fees are designed to discourage shopping for better deals as well as unfairly hurt transient populations like college students, PIRG contends.

"In 1999, 46 percent of banks imposed early account fees averaging $12.60 for accounts closed within an average of 3.6 months," PIRG reported. "In 1997, only 30 percent of banks imposed early account closing fees averaging about the same, or $12.56. The average number of months was slightly longer at 4.23 months."

And whereas the ABA praises as empowering consumers a move from fixed prices to an "a la carte" pricing system for an array of products, PIRG thinks the shift has made a confusing mess.

"In our view, the rise in fees and the increasing complexity of the fee system have created a burdensome and consumer unfriendly banking system that places huge costs on the middle class and prices lower-income people out of the federally-insured banking market," PIRG states.

PIRG estimates 12 million American families can't afford bank accounts, a figure echoed by the U.S. Treasury Department.

Treasury Secretary Lawrence Summers endorsed earlier this month legislation in Congress designed to help low- and moderate-income Americans open low-cost bank accounts. Summers said "as many as 10 percent of American households - and more than a fifth of those on low-income - have not broken through the banking barrier."

The $30 million proposal in Congress would allow the Treasury Department to provide incentives for banks to offer low-cost first accounts and encourage banks to expand ATM, Internet and other forms of access to accounts. Money would also be used for a financial literacy education campaign.

Love fees? You're in luck

In the meantime, banks are still thinking up new ways to impose a fee, PIRG reported.

Besides the hated ATM surcharges, some banks are imposing annual and monthly fees for cards.

And you know those little blank checking deposit slips at the branch office? Those might start costing you something too. PIRG reports those deposit slips and other "counter items" have a fee attached in some parts of the country.

"Although we did not track this fee in this year's survey, we expect it to grow," PIRG reported.

At least Central Bank's ad department seems to be in touch with the public frustration with fees. The brochure for "Central Free Checking" proclaims "It's your money. Why pay someone else to use it?"

What's a Poor Boy to Do?

Caveat Emptor.

Looking at brochures from a dozen Lexington banks, that advice is appropriate.

For example, National City Bank's "regular checking" account charges $7 a month if a minimum balance isn't kept. One way to satisfy the balance requirement is to maintain a $750 daily minimum balance in checking.

PNC has a rough counterpart that charges $8.50 a month when a customer does not keep an average balance of $1,000.

Note the different wording of the balance requirements.

For a lot of people, the checking account is fat around payday and is a Jenny Craig casualty by the end of the month. The monthly average may be more easy to maintain than the day-to-day balance.

And, of course, study the differing benefits. PNC offers unlimited check writing and ATM withdrawals, but National City allows just 25 checks, ATM withdrawals, or point-of-sale transactions a month-and then charges 25 cents for each one after that.

If some of the material seems confusing, it may not be just because you never got around to getting that Harvard MBA.

PIRG identifies confusing brochures as a national trend that has only worsened as of 1999.

"Fees change often and many banks insert cryptic addendum sheets listing only changes into longer, out-of-date pre-printed brochures instead of printing new brochures," the study complained.

Some banks design accounts for specific populations and their needs.

For example, Firstar in Lexington offers "student checking" which promises no minimum balances, a $1 monthly account maintenance fee suspended in June, July or August, five free checks a month and 10 free transactions a month at non-Firstar ATM machines.

Fifth/Third Bank is among the herd of banks offering specialized accounts for seniors. Fifth /Third's "Club 53" accounts offer unlimited check writing as one perk, but even grandma needs to keep a $100 daily balance to avoid a $5 monthly fee.

One way to duck bank fees is to circumvent the banks entirely.

Credit unions generally have fewer fees and charge less on the ones they do have.

"Credit unions are not-for-profit," said Brenda Menifee, the manager of member services at GTKY Credit Union on Red Mile Road.

Membership in a credit union is limited to employees of a certain company or group. But joining one might not necessitate a radical career change - just a little judicious shopping.

Menifee said among the approximately 40 companies that belong to the 8,500 member credit union is Good Foods Co-Op on Southland Drive. Those who buy a membership at Good Foods can apply for the GTKY Credit Union, she said.

For a household with two adults, a membership at Good Foods Co-Op costs $29 the first year and $15 each year after that.

Of course, most credit unions don't have as extensive a network of ATMs as Bank One, so think about whether you can get by with fewer ATMs or endure the surcharges at other banks' machines.

Choose wisely.

As Monty Python put it, "You can keep your Marxist ways for it's only just a phase. For it's money makes the world go 'round."