HOME / moneybox: Commentary about business and finance.

The Great ATM RobberyThe obscenely high new bank fees for ATM usage and overdrawn checks.

By Daniel GrossPosted Tuesday, Oct. 6, 2009, at 1:07 PM ET

You've got to hand it to the bankers. (Actually, we pretty much already have.) They blow themselves and the economy up while paying themselves grotesquely large salaries. Then, working with government officials, they figure out multiple ways to get taxpayers and customers to fund their recapitalization. First, the government shored up banks' balance sheets by purchasing stock through the TARP's capital purchase program. Then the Federal Reserve handed the bankers a gift by slashing the Federal Funds rate to zero. (Free money!) Then the Federal Deposit Insurance Corp. agreed to guarantee debt issued by banks, thus allowing them to borrow hundreds of billions of dollars at low rates. Meanwhile, with interest rates at Dead Sea levels, Americans with balances in their checking and savings accounts are essentially lending cash to banks for nothing.

RSS

And how does the industry that has received so much largesse from taxpayers repay the public? By jacking up fees for basic services. According to Bankrate.com, the average surcharge for using a money machine rose from $1.78 in 2007 to $1.98 in 2008. It's probably higher now. Last week, when I stopped payment on a check, I was astonished to find the charge was $32—about what it costs to sponsor a child for a month through Save the Children. Meanwhile, consumer complaints about being hit with massive and repeated overdraft fees have led to threats of congressional action.

The reality is that banks feel they have no other choice. Newsweek's Steve Tuttle recently argued that the outrage over overdraft fees is overdone because people incur them only when they spend money they don't have. Of course, banks are in the business of enabling just that sort of activity. They lend money to businesses and consumers to spend on stuff—cars, factories, houses—for which they can't pay cash. The problem for the banks is that the demand for that core business of spending money you don't have is way down. Businesses grappling with excess capacity aren't exactly demanding loans. Consumer credit has actually been falling, according to the Federal Reserve. Housing? Forget about it.

Banks need another way to generate cash, and, increasingly, they're doing so by levying larger fees. It's difficult to quantify the amount banks are earning from hitting people up who use ATMs or who overdraw their accounts. According to the consulting firm Oliver Wyman, via the Financial Times, U.S. banks earned $34 billion in fees from accounts with "insufficient funds" in 2007. "Before the financial crisis, such fees provided almost a seventh of the industry's pre-tax net operating income," the FT notes. The Washington Post reported last month that overdraft fees alone could total $38 billion this year.

The increase in fees is part of a great economywide readjustment in which many goods and services that used to be essentially free during the credit orgy now cost money. But some banks are clearly readjusting more than others. In July, Eric Dash reported in the New York Times that "the nation's biggest banks—those that received the biggest bailouts from taxpayers, and are once again gaining strength—charge fees that are on average at least 20 percent higher than those at smaller lenders."

It's hard to determine precisely how much banks are making on annoying fees. According to the FDIC's most recent quarterly survey, noninterest income rose 10.6 percent between the second quarter of 2008 and 2009, from $121.5 billion to $136.1 billion. But that figure includes money earned from trading and getting involved in buying and selling assets—not just revenues from nailing people with $32 check-stopping fees. Most banks don't break out those fees as separate line items. The most recent quarterly report from the nation's largest bank, JPMorgan Chase, said "lending & deposit-related" fees were $1.77 billion in the 2009 second quarter, up 60 percent from the 2008 second quarter. (Note that deposits rose only 20 percent in that period.) That $1.77 billion constituted a small fraction of the bank's nearly $13 billion in overall noninterest revenue.

Faced with public anger and the threat of congressional action, some banks are reining in overdraft fees. (Here's Chase's Sept. 23 announcement.) But higher fees are likely to be with us for a while. America's banks desperately need to build up profits and reserves—some to pay back the government, some to shore up their balance sheets against further losses. And we're probably going to keep paying them. For the factors that have made banking much more convenient in recent years—direct deposit, automatic bill payment—make switching accounts more of a hassle than ever before. Banks are essentially betting that the force of inertia outweighs the burden of high fees. Like so many bets that the financial sector has made in recent years, it's a wager that the banks are likely to win and the public is certain to lose.

E-MAIL

RECOMMEND... Get Slate RSS Feeds

Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at and follow him on Twitter. His latest book, Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation, has just been published in paperback.

Illustration by Robert Neubecker.

COMMENTS

In August, I checked my account one day and noticed my landlord was late cashing my rent check. The day before I had deposited several hundred dollar, but it hadn't shown up in my account yet. I went about my business, making a 4 *small* necessary purchases with my debit card without thinking anything of it. The next day I checked my balance: my rent check withdrawal and my few small purchases had gone through an hour before my deposit had. I had $140 in overdraft fees. I check my account obsessively. I never spend money I "don't have" but I was slapped with these fees I really didn't have the money to pay, all because of bad timing.

I also can't figure out why in this day in age deposits aren't immediately available for use. Seriously sometimes I have to wait two days- two days I don't have.

-- buggie
(To reply, click here)

Well you can stop wondering, they do just that, or close enough to be nearly the same thing.

Banks use 2 essentially evil sneaky practices to bump up overdraft fees:

Differing clearance times - You can deposit a check in the morning, and it won't be available to your account until the afternoon, or deposit it in the afternoon, and it won't be available until the next day (or longer if it falls into certain classifications, like out of state checks). But any *withdrawals* come out immediately. So if you deposit a check in the afternoon to cover withdrawals made in the evening, you may very well get hit with overdraft fees. This happens even with *certified* checks and sometimes even *cash* deposits.

Reordering transactions - Some banks will "reorder" withdrawals so that the largest withdrawals are deducted first, rather than processing them in the order they occurred. This has the result of increasing the *number* of overdraft transactions, which of course increases the number of overdraft fees.

-- racerx
(To reply, click here)

It tickles me that banks are resorting to the very same tricks they got called out on 30 years ago, knowing that nobody will call them out on it in 2009.

Have you noticed that the checks YOU write for another person or business can be cleared almost instantly, but the checks you deposit now take even longer to clear? A Chase bank told my daughter, with a totally straight face, that it might take up to five days to clear her payroll check, even though she had enough in her account to cover it. Thank god for free long distance. I told my daughter to listen and learn, then got us all on the line and told the bank manager that I would turn them in for floating their books if they didn't reduce that clearance time. He of course denied any such thing, but I persuaded him that anybody with a room temperature IQ knows that when a check is held longer than the TRADITIONAL amount of time, with funds denied to the holder, that is floating the books and it is illegal. The traditional amount of time for Chase to hold a check is 2 days, period. I assured him I knew that for a fact Jack. Fortunately I also know that morale at Chase is so low that no one is going to stick their neck out for them, so he relented.

So the moral of this story is: OF COURSE they are holding your checks as long as possible, so they can use the funds for free, and make their books look good for rating purposes. OF COURSE they will find any reason to charge overdraft fees. OF COURSE even the "best" banks are operating on a very scary margin of error, and even the CEOs are sweating it out, wondering if the whole house of cards is going to tip over again.

And lastly, OF COURSE, you should go to a credit union as soon as possible, and let these banks fail once and for all. It will be painful, very painful, but the current banking system is an infection no amount of antibiotics will fix.

-- freida52
(To reply, click here)

What did you think of this article?

Join The Fray: Our Reader Discussion Forum

POST A MESSAGE | READ MESSAGES