Bank Account Service Fees: What’s Too Much?

Bank Account Service Fees: What’s Too Much?

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Last week we provided you with a list of the biggest U.S. banks (those with assets exceeding $50 billion). You would expect that those big banks are raking in piles of money in fees. They do, but it’s not what you think.

Most of the largest banks get more of their fee income from fiduciary activities, not from charges on deposit accounts. When we look strictly at how much fee income is derived from overdraft and maintenance fees on deposit accounts as a percent of those deposits (transaction and savings accounts, specifically) only one Big Bank, 4-Star Regions Bank, Birmingham, AL, with $154 billion in assets ranks, among the top.

In a world where more banks are joining the ranks of those not charging any overdraft fees to individuals, Regions Bank charged $283 million in 2022. That pales in comparison to the $1.283 billion that 4-Star Wells Fargo Bank, SD brought in, but so does its size.

When taken as a percent of deposits, Wells Fargo’s fees on deposits (including overdraft) only amounted to 0.14%. Regions Bank’s fees were nearly double that at 0.27%. At the end of 2019, 0.27% was average, but not today. Our banks have made much progress bringing consumer fees down. The average service charge is down to 0.19%.

The 53 banks listed on page 5 of this week’s Jumbo Rate News each reported that overdraft and maintenance fees totaled more than 0.26% of their total transaction and savings deposits (T&SD).

That’s interesting because, the average, as we already mentioned, is down considerably. The four banks listed with the highest ratio of fees to deposits have also all showed real improvement over the year. But, there was an increase in banks with overdraft and maintenance fees exceeding 0.20% of deposits.

To drive the point home, we included both year-end 2022 and year-end 2021 ratios on page 5 and noted in red those that increased in 2022, which is most of them.

Here is where we would normally get upset at some of the banks that cater to our military, as they often charge among the highest fees. We consider this attempt to take advantage of our military personnel unconscionable. However, these banks are working to reign in those fees. While still high, they are making clear and steady progress.

That being said, 4-Star rated First National Bank Texas, Killeen, TX continues to have the highest O&M fees, by far. At the end of calendar 2020, FNB Texas charged a ridiculously high 4.32% of total T&SD in overdraft and maintenance fees. That was down to 3.74% at the end of 2021 and 3.17% by the end of 2022. Still high, but progress.

FNB Texas still charges more than a full percentage point more than the next highest. If the bank were to do away with its $34 overdraft charge, it could bring those down at a much faster pace. The problem is, First NB Texas needs that income to remain profitable. We would suggest they cut the overdraft fee to $20. Doing this, the $50.3 million in income (2022) would likely be reduced to about $11 million. The bank would remain profitable and the men and women of our armed forces would be helped tremendously.

5-Star Academy Bank and 5-Star Armed Forces Bank are sister banks, owned by Dickinson Financial in Kansas City. They also  cater to the military with roughly 100 branch offices in and near military bases, many conveniently locate inside Wal-Mart stores. These banks charge $20 for each overdraft with a maximum overdraft fee of $100 per day; that can add up quickly.

To their credit, these banks do offer other options to deal with these situations: overdraft protection transfers from a linked account; and a ready line of credit  that can be used to cover any shortfalls. Both of these options have their own pros and cons. Of course, the best option is “Good Account Management”. That one is free. J

Speaking of good account management… before a bank account can be closed, the account balance must be brought to zero. The Consumer Financial Protection Bureau (CFPB) has discovered that some banks are reopening closed accounts to process outstanding checks that are presented after closure. They are doing this without seeking permission from the account holder nor giving timely notice so they can avoid the inevitable fees associated with such a move.

We know that in 2019, 3½-Star USAA FSB, San Antonio, TX (another military bank) was ordered to pay more than $15 million in restitution and fines for doing just that. And while we don’t have specifics on other banks operating in this manner, the CFPB has reportedly been receiving complaints.

Financial institutions sometimes reopen an account even if doing so would overdraw the account, causing the financial institution to impose overdraft and non-sufficient funds (NSF) fees. Financial institutions may also charge consumers account maintenance fees upon reopening, even if the consumers were not required to pay such fees prior to account closure (e.g., because the account previously qualified to have the fees waived).”  Despicable.

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