Banks Robbing Us with Fees

I'm going to keep my money underneath my mattress after reading this article from Slate.com. The banks are sticking it to us.  You've got to hand it to the bankers. (Actually, we pretty much already have.) They blow themselves and the economy up while paying themselves grotesquely large salaries. Then, working with government officials, they figure out multiple ways to get taxpayers and customers to fund their recapitalization.

First, the government shored up banks' balance sheets by purchasing stock through the TARP's capital purchase program. Then the Federal Reserve handed the bankers a gift by slashing the Federal Funds rate to zero. (Free money!) Then the Federal Deposit Insurance Corp. agreed to guarantee debt issued by banks, thus allowing them to borrow hundreds of billions of dollars at low rates. Meanwhile, with interest rates at Dead Sea levels, Americans with balances in their checking and savings accounts are essentially lending cash to banks for nothing.

And how does the industry that has received so much largesse from taxpayers repay the public? By jacking up fees for basic services. According to Bankrate.com, the average surcharge for using a money machine rose from $1.78 in 2007 to $1.98 in 2008. It's probably higher now. Last week, when I stopped payment on a check, I was astonished to find the charge was $32—about what it costs to sponsor a child for a month through Save the Children. Meanwhile, consumer complaints about being hit with massive and repeated overdraft fees have led to threats of congressional action.

The reality is that banks feel they have no other choice. Newsweek's Steve Tuttle recently argued that the outrage over overdraft fees is overdone because people incur them only when they spend money they don't have. Of course, banks are in the business of enabling just that sort of activity. They lend money to businesses and consumers to spend on stuff—cars, factories, houses—for which they can't pay cash. The problem for the banks is that the demand for that core business of spending money you don't have is way down. Businesses grappling with excess capacity aren't exactly demanding loans. Consumer credit has actually been falling, according to the Federal Reserve. Housing? Forget about it.

Banks need another way to generate cash, and, increasingly, they're doing so by levying larger fees. It's difficult to quantify the amount banks are earning from hitting people up who use ATMs or who overdraw their accounts. According to the consulting firm Oliver Wyman, via the Financial Times, U.S. banks earned $34 billion in fees from accounts with "insufficient funds" in 2007. "Before the financial crisis, such fees provided almost a seventh of the industry's pre-tax net operating income," the FT notes. The Washington Post reported last month that overdraft fees alone could total $38 billion this year.

Continue Article at Slate.com

SOURCE: http://www.slate.com/id/2231636/