For the past year, banks have raised credit card rates to levels that sparked consumer outcry, regulatory scrutiny and congressional action. A law President Obama signed last week aims to stop the most egregious practices.
But even as outrage was building over credit cards, banks seized upon another way to squeeze profits out of struggling consumers: higher checking account fees. These fees can add up to hundreds of dollars before consumers know there's a problem.
As the economy struggles to climb out of a recession, banks are extending some of their most profitable — and controversial — credit card practices to checking accounts.
For example, banks are making it easier and more punitive for consumers to spend more than they have in their checking accounts, just as they allow consumers to spend past their card limits and charge them a steep fee for doing so. Some analysts believe that new credit card restrictions will only accelerate fee increases on bank accounts.
"This is Business 101," says Adam Levitin, a law professor at Georgetown University. "If you take losses in one area, you try to offset them in other areas of operations."
In June, Bank of Americabac will raise its monthly fee on certain checking accounts and impose a fee on accounts that remain overdrawn. SunTruststi, meanwhile, is starting to charge customers a higher fee when they overdraw multiple times. Wachovia, now a part of Wells Fargowfc, has made it more expensive for some customers to transfer funds to cover overdrafts. And Citigroupc has raised foreign-transaction fees on debit cards.
At a time when the government has bailed out many of the largest banks, the moves are drawing the ire of economists who say they threaten to further undermine consumers' financial stability.
Unemployment has reached 8.9% — a nearly 26-year high — and consumers are falling behind on their bills at a record rate. While the economy is showing signs of improvement, consumers' troubles are far from over.
"It's a double whammy," says Michael Moebs, founder of Moebs Services, an economic research firm in Lake Bluff, Ill. "The American consumer as a taxpayer was asked to put up $700 billion (for bank bailouts), and now they're getting another whammy from banks increasing fees."
Banks are raising account fees because of a "mix of market power and opportunism," says Simon Johnson, a former chief economist for the International Monetary Fund who teaches at MIT's Sloan School of Management.
"They are supposed to act in the interest of shareholders, so they're gouging consumers."
Banks defend their policies, saying that as unemployment rises, consumers have become riskier, and the higher fees reflect that risk. Banks may also be raising some account fees to compensate for higher borrowing costs and to keep prices in line with other financial institutions, says Scott Talbott of the Financial Services Roundtable, which represents the nation's largest banks.
'These fees are like germs'
But the aggressive fee increases, consumer advocates say, underscore the need for regulators to crack down uniformly on bank practices that are pushing consumers deeper into debt — whether on credit cards or checking accounts.
"These fees are like germs. They have a tendency to spread," says Gail Hillebrand, senior attorney at Consumers Union, which publishes Consumer Reports.