And there are a lot of other ways banks can squeeze extra money out of you, so it is important to study your credit card and bank statements carefully each month.
In its 15th annual checking survey, Bankrate.com reported that truly free checking accounts with no catches can still be found, but they have become increasingly rare.
But Kathleen Day, spokeswoman for the Center for Responsible Lending, a nonpartisan research and consumer advocacy group, said that for the most part, free checking was never really free.
“You would think that we’d be up in arms about this, but it really is more transparent. It was never really free. You had to have a certain amount of money in savings,” Day said. “The idea of paying a fee for a checking account is just a way to make the fee more explicit.”
Many banks required either direct deposit and/or a minimum of $500 in your savings account to avoid a maintenance fee on your checking account. Some banks would refund the fees to your account if you used another bank’s ATM to withdraw money.
But in a tight economy, with fewer people taking out major loans with significant interest rates and low returns on various saving and investment instruments, the banks are looking to make money in other ways.
Thanks to new consumer regulations enacted under the Obama administration, consumers must choose to opt for overdraft protection, so while the banks won’t cover the difference if you make a transaction with your debit card that leaves you with insufficient funds, they also cannot charge arbitrary fees for being overdrawn.
For example, say a customer with $100 in her account makes a purchase for $105. With overdraft protection, the bank would make up the difference, but assess a fee – usually $30-$35 – for having insufficient funds. Some banks, if the difference wasn’t made up within a couple of days, would also charge a late fee of equal size, so a consumer could end up spending $60 or $70 for a $5 error.
For some consumers, those fees could mean the difference between being solvent to quickly falling behind on bills because the fees eat up any disposable income.
It’s big business for the banks.
New rules require banks to ask customers if they want overdraft protection and many banks now alert patrons when there are low or insufficient funds in the account (or just decline the transaction). By deciding whether to opt in, some of the more vulnerable consumers are protected from onerous fees.
But even regular customers with few or no banking issues can be gamed, too.
Tools purportedly designed to help people better manage their budgets are not always beneficial.
Some credit card companies offer to automatically deduct payments from a customer’s account so that due dates are not missed. Sometimes, however, the payment deducted is not the minimum due. As a result the customer is always delinquent and will be hit with additional interest for falling short each month.
Some schedule the payment for the day after the due date so that the payment is always past due and late fees can be added to the balance.
Still other banks “reorder” transactions to squeeze out more fees.
For example, say someone writes a check that is not deposited by the recipient until a month later. Some banks will look at the date on the check and go back to what was in the account at the time the check was written. If there wasn’t enough money in the account at the time, the bank will treat it like an overdraft, even though there were funds in the account when the check was presented for payment.
Customers who believe they have a legitimate complaint should contact the Consumer Finance Protection Bureau, established, despite Republican opposition in Congress, to educate consumers and enforce consumer finance regulations.
Once filed, the CFPB notifies the bank there is a complaint pending against it. Often, the bank will send the customer and the bureau a letter and will make some adjustment to mollify the consumer, usually a whole or partial refund.
If the settlement is insufficient, the consumer should again contact the CFPB to say the issue has not been resolved satisfactorily. Otherwise, the case will be considered closed.
The days when customers had a relationship with bankers who aimed to serve are largely gone, Day said.
“They changed the covenant, but didn’t bother to tell the consumer, ‘Oh by the way, the whole paradigm has shifted; we no longer work in your best interest,’” Day said.
“It’s no longer buyer beware; it’s buyer be damned.”
Jackie Jones, a journalist and journalism educator, is director of the career transformation firm Jones Coaching LLC and author of “Taking Care of the Business of You: 7 Days to Getting Your Career on Track.”