Charge of the Bite Brigade

MarketWatch

Ten sneaky bank fees that sting unsuspecting consumers

Banking and credit-card consumers need to keep their guard up as financial institutions increasingly impose new fees and charges to balance their books in the wake of the continued economic downturn.

Banks and card companies have gone on the offensive in advance of proposed new consumer financial-products protections that the Obama administration is asking Congress to enact. For many consumers, that could mean an unexpected sting on monthly bills.

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"The fee income is becoming increasingly more important as interest income is falling as a percent of total revenues," says Bob Hammer, CEO of R.K. Hammer, a bank-card advisory firm.

Late fees, loan origination, over-the-limit and overdraft charges, for example, helped generate a hefty 53% of banking industry income in 2008, according to the Hammer firm. That's up from 35% of income in 1995.

At $19 billion, credit-card penalty fees alone are nearly 80% more than what they were in 2003.

Overdraft charges are becoming increasingly more lucrative too. The average bounced check fee is $28.95, a rate that rises every year, according to Greg McBride, senior analyst at Bankrate.com. That's for the first one. Most banks have a tiered structure in which the fees for subsequent overdrafts rise to $33 or $35 if you overdraw two, three or four times.

"The best defense to that is what kind of habits can consumers change so that they're not hostage to those fees," Mr. McBride says.

Banks see plenty of room to grow revenue from those fees and the pressure is on for them to do so.

"If there's a way to create and use a fee, it will happen," said Adam Levine, chairman of Credit.com. "These guys have never met a fee they didn't like."

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The fees aren't necessarily bad, consumer advocates say, as long as they are reasonable: There's a whole lot more involved in a loan origination, for example, than there is using an ATM. But Mr. Levine says that banks are drawing wide margins around what's considered "reasonable."

"Bigger banks tend to be more fee-centric than small banks do," Mr. Levine says. "Big banks will tell you how friendly they are, but small banks tend to be more consumer friendly."

Remember this: It's always worth the time to pick up the phone and ask for a pass on the fees. No bank is going to advertise that it waives fees on a regular basis, but many of them do when asked --nicely, of course.

Here are 10 fees you especially need to keep a close eye on:

1. Overdraft. Should you unknowingly bounce a check, you could be charged a multitude of times before finding out and balancing the account. Many consumers argue that banks should deny them cash at the ATM if it's going to overdraw the account.

2. Deposit returned. If a check deposited in your account bounces, you're charged a fee. Word to the wise: accept checks only from trusted sources.

3. Checking. This is the privilege-of-using-your-own-money charge that many banks did away with years ago. But charges are starting to creep back into the system, experts warn. Consumers should not assume their checking accounts are fee-free -- or if they are, that they will continue to be infinitum. "The type of checking account to now look for is one that does not have a monthly service charge, minimum balance requirement or limit on the number of transactions you can make," says Bankrate's Mr. McBride.

4. Teller. Banks drew fire from consumers in the 1990s when they tried charging a fee if human interaction occurred when depositing or withdrawing money. There are scattered reports of these fees popping up, mostly now in the form of "excessive" use of tellers. Some banks, for example, will give you two free teller visits a month, but charge you for extras.

5. Inquiries. This is the phone version of teller fees. Make a call about your account, a question about a charge or to order a new book of checks and you could get hit with this service fee. "These are the routine fees that month after month can really have a significant impact on your bottom line," Mr. McBride says.

6. Closing accounts. Consider this a punitive fee. Many banks will charge you a fee if you close an account within 90 days -- and sometimes within six months -- of opening it.

7. Credit cards. Late fees and over-limit charges are already steep but could go higher. The new legislation will put caps on some of those fees and on how they're charged against old and new balances. But until then, expect to see them grow. Grace periods also are expected to end or be severely restricted.

8. Annual. In the early days of credit cards, issuers charged consumers a yearly fee for the right to charge. Competition drove most away, but it looks like they may make a comeback. "Read your mail," Mr. Hammer says. "If you get something from the bank, it's usually because they're making a change. Find out what it is."

9. Currency conversions. Got extra euros from a recent trip that you want converted to dollars? It will cost you. These are fees that are on an upswing too.

10. ATMs. If you use an ATM that doesn't belong to your bank or has an agreement with your bank you could get whacked twice, once by your bank and again by the ATM's owner. And the bite is getting bigger.

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