If bank fees are a mystery to you, you're not alone. Government investigators dispatched by Congress last year to find fee schedules at banks around the country came back empty-handed 22 percent of the time. And at one-third of the banks, information on overdraft fees and procedures was nowhere to be found.
The Government Accountability Office study, which was released Monday, concluded that consumers lack the most basic information to "comparison shop" when selecting banks.
Lack of a clear and conspicuous fee schedule violates the 1991 Truth in Savings Act and Federal Reserve Regulation DD. But while banking regulators cited firms for ignoring fee disclosure rules 1,674 times between 2002 and 2006, the GAO found that significant consequences for violations are rare. Only twice did regulators undertake formal enforcement actions.
In other words, it's far more likely that you'll get a parking ticket for breaking parking rules outside a bank than it is the bank will be fined for disobeying federal lending laws.
While the fees may be a carefully guarded secret, their consequences are obvious. Last year, banks grabbed $36 billion out of depositors' accounts in fees, the GAO said. Fees are up 11 percent since 2000, and are becoming an ever more important part of bank business, accounting for 27 percent of banks’ "non-interest income" last year, up from 24 percent in 2001, the report said.
The results echo those of a 2001 study by the Public Interest Research Group, which concluded that it was impossible at the time for consumers to intelligently compare the costs levied by banks.
"That's the fundamental issue," said Ed Mierzwinski, who conducted the PIRG study, added that nothing had changed since he examined the issue. "It's amazing that banks get away with all this," he said.
Mierzwinski said PIRG believes banks should be forced to publish all fee information on their Web sites -- more than half of banks don't, the GAO found -- so consumers could comparison shop from home. Such information would inevitably lead to creation of Internet sites where fee schedules are compiled and displayed for easy side-by-side comparison. Similar sites comparing credit card interest rates and terms are popular among credit card shoppers.
The GAO study was requested by Rep. Carolyn B. Maloney, D-N.Y., who has introduced legislation to improve bank fee disclosures related to overdrafts. Among other things, the Consumer Overdraft Protection Fair Practices Act would require consumers to affirmatively accept overdraft fees before a bank could enroll them in overdraft protection programs.
"This bill would cure one of the main problems reported in this report. It would eliminate the ability of banks to hide overdraft fees from consumers," Maloney said.
The GAO investigators spotted an interesting trend in analyzing bank fees over the past six years – the lower the interest rate set by the Federal Reserve, the higher the fees charged by the banks.
"Low interest rates combined with increased competition from other lenders can make it difficult for banking institutions to generate revenues from interest rate ‘spreads,’ or differences between the interest rates that can be charged for loans and the rates paid to depositors and other sources of funds," the GAO reported.
Watch for more fees soon
So when interest rates are down, banks don't make as much money from loans, and have to compensate by raising fees, the report suggested.
That means consumers should be on the alert for more fees, as the Federal Reserve’s Board of Governors is now aggressively cutting interest rates.
Consumers also should be on the alert for banks ignoring the Truth in Savings Act, Mierzwinski said. But because consumers don't have the right to sue for non-compliance, their only recourse is file a complaint with regulators, which he says often falls on deaf ears.
"Banking regulators have never met a bank that they want to punish for anything less than money laundering or out and out fraud," he said. "And we have to rely on regulators. The way the law is written, if regulators don't protect us, we can't protect ourselves."
RED TAPE WRESTLING TIPS
If your bank does not have a fee schedule posted in an obvious area, you should complain and ask if it has been cited. But complaining isn’t straight forward. To do so, you need to determine which of these five agencies regulate your bank. Follow the link to land on each agency's complaint page.
National banks (have the word National or the initials N.A. in their name) are regulated by the Office of the Comptroller of the Currency.
Some state banks report to the Federal Reserve Board. Call and ask your bank if you can’t tell.
State banks that don’t report to the Federal Reserve Board are regulated by the Federal Deposit Insurance Corporation.
The National Credit Union Administration regulates most credit unions (information on contacting some state-chartered credit unions is available at this link).
Federal savings and loan banks, along with federally chartered savings banks (identified by the initials F.S.B.) are regulated by the Office of Thrift Supervision.
