Figuring out what all those bank fees mean

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The ever-useful Red Tape Chronicles on MSNBC.com has a great story on trying to track down the “Service Fees” that show up on bank statements everywhere, every month:

The other day, colleague Andy Gallagher showed me his fee-laden Wachovia checking account statement, his blood boiling from unintelligible fees. But it was the “more info” thing that really stuck in his craw. You can see why by looking at the graphic below.

“What’s this for? I have no idea,” he said, pointing to the $3 fee on the screen. Seeing the swelling veins in his neck, I set out to find “more info.”

Bank fees are a powerful source of revenue for America’s financial institutions, and one of consumers’ top headaches. If it feels like the bank fee noose has closed tighter around your neck in recent years, it has. The Federal Deposit Insurance Corp. says the nation’s largest banks now generate 44 percent of their revenues from fees. Estimates of how much that amounts to vary between $30 billion and $50 billion a year, but it’s clear banks are rolling in money they take from customers, often without explaining themselves very well.

This is absolutely a huge problem for every consumer. The idea of banks charging fees where they won’t even tell you what they mean is, as far as I’m concerned, reason enough to leave that bank. Of course, they will tell you what it means — they just won’t make it easy for you to know:

Andy had the same question so many other American consumers find themselves asking every day: What the #%$& is this fee for? The Wachovia Web site provided no answer. Despite its lofty promise, there was no “more info.”

But Jim Baum, a Wachovia spokesman, did find “more info” for me. The service fee represents a recurring fee Andy is charged every month for the type of account he has, called a “simplified checking account.” Baum recommended that Andy upgrade to another, free account. I said that wasn’t the point.

“Why isn’t there ‘more info’ where the site promises ‘more info?’” I asked. […]

In the meantime, another Wachovia spokesman, Matt Wadley, pointed out, correctly, that the bank does have a 24-hour hot line customers can call with questions like mine.

Mr. Wadley is correct that you can call your bank to ask about a fee. When I recently called Washington Mutual about a fee listed on my bank account after an ATM transaction, though, they told me that they had no way of knowing the cause of the fee, and that I’d have to go to the branch where the transaction took place. When I did, that branch told me I’d have to go to the branch where my account was housed. So the process I had to take to track down a fee was:

  1. Go to WaMu.com and see that the fee had happened.
  2. Call WaMu’s 800 number and ask about the fee.
  3. Go to the branch where the ATM was and ask about the fee.
  4. Go to the branch where my account was opened and ask about the fee.

(I’ll talk more about this experience next week — it was, to say the least, instructive.) Why do they make it so difficult to track down these fees? The answer is breakage — the more steps they put in your path to request a fee reversal, the less likely you are to follow through. They don’t want to make it impossible, since that would be bad press; they just want to make it onerous, as onerous as needed to maximize fee revenue.

Every time you are told you need to make another call or complete another step, you should think, “This is designed to create breakage. They’re trying to get me to give up.” Then, don’t give up. Banks put this many steps in front of you specifically when it’s worth your while. When you give up, their revenue increases.

I’m glad the Red Tape Chronicles dug into these fees. As you saw, when they dug in, there was a free account alternative available. Look for these small monthly charges, call your bank, and say, “I don’t want to pay this fee. How do I do that?” If the answer is that the fee is required, change banks. (See also “A TOTALLY AWESOME economics paper” for more on this.)

7 Responses to “Figuring out what all those bank fees mean”

  1. Tony Stubblebine Says:

    So when do you tell us which bank charges wesabe customers the most fees?

  2. Marc Hedlund Says:

    In the post next week — it’s all about fees. We’re also adding that to the product. Stay tuned. 🙂

  3. James Says:

    Hi,

    I love the posting! My wife and I just got a new mortgage with WaMu. They’ve been sending us a ton of requirements related to her name change as well as some totally random information regarding transferring the property into a trust. I think that Washington Mutual’s bureaucratic red tape is especially bad.

    Best,

    James

  4. James Gardner Says:

    Hi Marc,

    In my experience, banks simply don’t have the capabilties to design business processes in such a way that they could create “breakage” situations as you describe. They have enough trouble getting an address change to work across multiple systems and channels.

    That such poor customer experiences exist is beyond dispute. But they are more likely to have evolved over time by accident than be any part of a grand design to maximise fee revenue.

    In any event, surely the long term customer impact of “breakage” is losing a customer? Given the costs to acquire the customer in the first place is likely to be orders of magnitude greater than the disputed fee, surely making a one-off reversal simple would have a strong business case?

  5. Marc Hedlund Says:

    Hi, James,

    I’d think that the long term effect of breakage is loss of a customer, but if that were true, why would rebate companies and gift card vendors talk about it as a positive thing? Is it just short-sightedness, or are they banking on the idea that people will not follow through on acting on frustration if they partially blame themselves for the breakage occuring? It seems to me that this is exactly the strategy of breakage — set up the consumer with requirements that are clear but burdensome, and assume that some percentage of them will not follow through. When that happens, you can easily say, “But sir, the terms were clear…” even though they know full well that the terms are not required.

    In this case, I do believe that it is enough in the interest of the very largest banks not to refund every fee a consumer calls to complain about, and to set up scripts for call center representatives that forward those consumers to branch offices for any refunds. Whether the intent is breakage or something else, the effect is that another hoop appears before the consumer, and breakage occurs as a result. Not only that, the consumer will often blame themselves since they did have a path they could follow, and for whatever reason they did not.

    My message to consumers is this: (1) look out for the appearance of hoops that would slow you down; and (2) don’t blame yourself if you have an unfair fee — instead, blame your bank for making resolution unneccesarily difficult. If consumers take those two steps, they can reverse a great many of the fees in their life, which I believe are an undeclared tax on business services they can get elsewhere at lower or no cost.

  6. Lp Says:

    Marc,

    This post is insightful. I would like, no wait, love it if I could find similar information about cellular phone bills. My banking fees are pretty nominal (I use a somewhat local credit union) but the fees and charges and taxes and fees and charges on my Verizon Wireless bill is what has me contributing quarters to the “swear bucket.” If I wasn’t such a gadget freak and I didn’t “need” the service, I’d happily ditch it.

    Any dirt on these types of services in the future would also be of interest.

  7. Paula Barton Says:

    i think that it is ridiculous the banks will not tell you what the exact charge name is for. you have a right to know! bank charges are unfair and illegal!

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