Government agency overseeing banks criticizes bank fees

USA Today is reporting a new Federal Deposit Insurance Corp. study has come out with a finding: Overdraft fees at banks are boosting their profits "at the expense of consumers, especially young and low-income people."

Shocking. It's the kind of news that you'd generally read about -- as the hilarious comedian Andy Borowitz likes to say -- in Duh magazine.

I'm not mocking USA Today -- I'm glad they're reporting on this -- or the Federal Deposit Insurance Corp. It's important to do these studies, and it's significant because the government agency that oversees these banks, by guaranteeing the safety of their customers' checking and savings deposits, is criticizing these banks.

But I doubt that anyone who isn't a garden variety multi-millionaire is going to be remotely surprised by their findings. So what is going on with this study?

The survey only looked at FDIC-insured banks, and what they found was:

  • Most banks automatically enroll customers into overdraft programs without telling them -- and then they won't let them out of it if asked. These programs then allow consumers to overdraw by check, ATM or debit card purchases.
  • About half of overdrafts occur at ATMs or through debit card transactions.
  • Large banks are more likely than smaller ones to process transactions from largest to smallest dollar amount. Ergo, more fees.
  • In 2006, banks earned $1.97 billion in overdraft-related fees, representing 74% of the $2.66 billion that the banks brought in on service charges.

According to the group the Center for Responsible Lending, if you include all banks, not just FDIC-insured ones, and credit unions, every year they're pulling in $17.5 billion in overdraft-related fees. Or if you go with the numbers from the Government Accountability Office, which go beyond overdrafts and into ATMs and other service charges, Americans spent $36 billion in 2007 on banking fees.

And what I found really interesting in the USA Today article was that they mentioned Michael Moebs, a bank consultant, who said that according to his research, nearly half of consumers pay overdraft fees every year.

So here's my idea, which will alleviate our frustration with bank fees, jump-start the economy and redirect some of the bailout money to the public.

We should put the government in charge of deciding what bank fees should be.

Ideally, I'd love to just get rid of banking fees, but I realize that will never happen and truthfully they have their place. Some people obviously would abuse their bank account if they knew that there would be no punitive fees for going amok.

But there's a good argument going that banks are abusing consumers with their bank fees, and Congress could put some laws in place to bring bank fees down considerably, to levels where banks weren't profiting but just covering maintenance costs.

I know I'm not the first to suggest this. In fact, someone at the Huffington Post recently suggested that the bailout be tied into eradicating ATM fees.

Interesting thought, but again, I'd like to go much further. I'd like to reduce all banking fees across the board. And if not at every bank, at least every single bank that gets any bailout money from the government.

Here's my logic.

The government works for the people, and right now, the people's money is helping to save banks, many of which made a lot of bad decisions over the last several years. So right now, the banks are an extension of the government, and so in theory, the banks should be doing the bidding of the people. Well, I'm declaring what I think we should do: let's slash bank fees to what they were in -- and I'm admittedly pulling this year out of thin air -- 1985.

If the government did that, everyone would have more money -- more money to buy houses, cars, milk. More money, in other words, to spend on the economy and put in their savings accounts, all of which will help everyone, including banks.

Geoff Williams is a freelance journalist and the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).
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