Rising bank fees create financial burdens for low and moderate income consumers
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Frank Torres or Mary Griffin
FOR LOW AND MODERATE INCOME CONSUMERS
Millions of Americans, looking for a place to safely deposit their hard earned dollars and a means to pay their bills, get hit every month with checking account fees they cannot avoid. And those fees are going up as banks have increased checking account charges unless high minimum balances are met — balances that are out of reach for many American families. An estimated 12 million households currently have no bank accounts at all.
- Many households cannot meet the minimum balances required by banks to avoid fees. Recent Federal Reserve data show that almost half of American families, 48 million households, keep a $1,000 or less balance in their checking accounts. While a vast majority of these families have income levels below the $35,000 average yearly income for U.S households, 13 million families making between $35,000 and $50,000 also keep less than $1,000 in their checking accounts. Consumers may have to maintain minimum balances of as much as $750, $1000 or more in their accounts at all times or maintain an average balance of even more if they want to avoid paying substantial fees. According to a recent study by US PIRG, the average cost of a checking account is $218 per year. That amounts to billions of dollars a year in bank fees for families who can’t afford the balances required to avoid them. Bigger banks charge higher fees, and require higher minimum balances to avoid fees. The merging banks that are claiming efficiencies are the same banks that are charging higher fees.
- Banks have raised the minimum balance required to avoid fees. A 1996 study by Consumer Reports found that minimum balances required for the average checking account were 40 percent higher than in 1994 . Citibank in New York, for example, requires a minimum balance of $6,000 for their standard checking accounts to avoid fees — a 200 percent increase from prior minimum balance requirements. For account holders looking to earn interest on their checking account, the study found that they must keep $1,500 in their account, on average, while earning only 1.5 percent annually.
- Even “basic” or “no frills” checking accounts impose a variety of fees. While there may be no minimum balance required for “basic” or “no frills” accounts, these accounts carry more fees than consumers realize, including monthly service charges; fees for the use of tellers or making withdrawals or deposits, as much as $8 per transaction in one D.C. bank, for example; and, fees of $1.50 or more for writing more than a very limited number of checks. Some banks are charging account holders just for telephone inquiries about their balances. Many banks even charge customers in some instances when they close their accounts with “early account closing” fees. Just because an account is considered “basic” doesn’t mean it is low-cost. According to US PIRG’s survey, “no frills” accounts end up costing $152 a year on average. Consumers get nickle-and-dimed to death, creating a financial burden on lower income consumers.
- Bank fees have skyrocketed, moving higher than the rate of inflation. The 1996 Consumer Reports study on bank fees identified 100 separate fees that banks now impose on consumers. The size of those charges has been rising at better than twice the rate of inflation, jumping more than 50 percent on checking accounts between 1990 and 1996.
WHAT CONSUMERS NEED
Low-cost Basic Banking Accounts: Most people need banks, but many cannot maintain the high minimum deposits required to avoid monthly charges. Low-cost basic banking accounts, with reasonable service fees and low or no minimum initial deposit or balance requirements, are needed to lessen the financial burden on low and moderate income consumers.
Congress Needs to Act: As Congress considers H.R. 10, a bill to restructure and “modernize” the financial services industry, letting banks merge with insurance and securities firms, it must seize the opportunity to make sure banks meet the needs of all consumers, not just the wealthiest among us. In the version of H.R. 10 passed by the House of Representatives, banks operating under the new law would be required to offer low-cost basic banking to consumers. But on September 11, the Senate Banking Committee by a vote of 10 to 8 stripped this important consumer provision out of H.R. 10. When the full Senate takes up the bill, it needs to put basic banking back in the bill to help ensure struggling low and middle income consumers get a break from exorbitant fees for essential banking services.