Most who are outraged at increasing bank fees are directing their anger at banks, but isn’t it really all Home Depot’s fault? I know that you aren’t following yet, but soon you will.

 

Two months ago, banks began charging debit card fees as a way to recoup lost debit card revenue resulting from financial regulation legislation passed in 2010. A month ago I reported that these fees had been reconsidered by banks, but that consumers were still likely to lose in the end.

Unfortunately, much has happened in the last month and while debit card fees may be dead, it’s looking like consumers are set to pay increasing bank fees and even more.

Recap on How All of This Started

Via Smart Family Finance cira 10/24/11:

Any plastic you use for payment, whether a credit card or debit card, charges a fee to the retailer that you are purchasing from. America charged the highest debit transaction rate, averaging about $.44 a transaction. Traditionally, retailers passed these fees onto the consumers, but with inflation of prices on many retail goods like clothing, merchants were afraid that consumers had reached the tipping point.

Enter financial regulation reform and the Frank-Dodd bill. Part of the massive reform bill was to set a ceiling on these transaction fees in the name of lowering the cost of retail goods to the consumer. According to the NY Times, transaction fees were lowered by 50 percent from $.44 to $.24. The intent of the bill was to try and shift costs of transactions from consumers to banks. Retailers and consumers could then share the benefits of lower retail prices.

The Rise and Fall of Debit Card Fees

The banks’ solution to the debit card rate caps was to charge monthly fees to consumers that use debit cards. However, massive outrage ensued.

Via Smart Family Finance circa 11/4/11:

What happened to banks was far worse. In the case of debit card fees, price was more elastic than the banks realized. They miscalculated consumer’s reactions thinking that they’d see a loss of business in their debit card usage and didn’t realize that raising the price of debit cards would result in a substitution of all banking products. If debit cards were soap, should Unilever raise the price of their dove soap it would mean a large population of consumers would not only switch to a new brand of soap, but also body spray, tea, mayonnaise, margarine, noodles and diet drinks.

Obviously, banks were ready to take a hit in debit card usage, which is probably why the fee was as steep as $5. What they didn’t realize is that their other financial products were going to be affected.

Without Debit Card Fees, Banks Raising All Other Fees

However, debit card fees are not banks only way to raise revenues and as Jeremy at Personal Finance Whiz pointed out, banks can simply raise all fees a little bit in the hopes no one will notice the price increase. That seems to be what has transpired in the last month. The NY Times reports that bank fees are increasing across the board:

For consumers, the result is a quiet creep of new charges and higher fees for everything from cash withdrawals at ATMs to wire payments, paper statements and in some cases, even the overdraft charges that lawmakers hoped to ratchet down. What is more, banks are raising minimum account balances and adding other new requirements so that it is harder for customers to qualify for fee waivers.

Even the much-maligned debit usage charges have effectively been bundled into higher monthly fees on checking accounts. Bank of America abandoned its $5 a month debit card usage fee in late October amid a firestorm of criticism. Yet, it more quietly raised the cost of its basic MyAccess checking account by more than $3 a month earlier this year. Monthly maintenance fees now run $12 a month, up from $8.95.

Chase and Citigroup, which quickly distanced themselves from the debit card usage fee, ratcheted up the price of their entry-level checking products without the public relations nightmare. This month, Citigroup’s basic checking account jumped to $10 a month, up from $8. Chase raised the fee on its standard checking account to $12 a month in February; many of those customers were previously charged nothing at all.

Just to throw more fuel on the fire, this year banks heaped an additional 10.3% in fees on closing costs.

The point being, banking fees are increasing costs to consumers.

Transaction Card Intermediaries Reap Extra Profits

Remember how legislation was intended to ease the burden on retailers who were then supposed to lower retail prices for consumers? However, the winners thus far are definitely not consumers and probably not retailers either. Instead, transaction intermediaries like MasterCard and Visa are increasing up-front fees charged to retailers as a way of siphoning off the benefit of the debit card rate legislation. According to Bankrate:

Separately, some merchants that process a large number of debit transactions for small purchases — for example, under $15 in some cases — are seeing those rates rise because Visa Inc. and MasterCard Inc. have eliminated discounts that they had previously offered.

Nearly Half of Retailers Weren’t Planning on Passing Savings to Consumers Anyways

Retailers are their own victims. The odds that consumers would ever become winners in this fiasco were far and wide. According to a survery by DRF, 41% of retailers surveyed in September responded that lower debit card costs would not be passed onto consumers. 56% of retailers were undecided and wanted to see how the fee reductions panned out.

I think it is safe to say that it is not panning out for retailers and not likely to trickle down to consumers.

Retailers, Transaction Companies and Banks 3; Consumers 0

With transaction companies soaking up the lower costs of debit card fees, with banks charging more fees on all banking products and with retailers who are unlikely to do anything with lower debit card fees but increase profits, there really isn’t any room for consumers to come out on top. In fact, it’s becoming easier to argue that consumers will walk away worse off than before.

If I were to rate the various groups from likely biggest loser to winners it would be:

1)      Biggest Loser – Consumers

2)      Loser, But Might Break Even – Banks

3)      Probably No Worse Off – Retailers

4)      Winners – Debit card transaction companies

Just to recap, this was how it was supposed to be:

1)      Biggest Loser – Banks

2)      No Better or Worse – Debit card transaction companies

3)      Winner – Retailers

4)      Biggest Winner – Consumers

Instead, it is looking like the third party transaction companies like Visa and MasterCard are set to benefit from the debit card fee war. Ironically, banks and retailers, aka the warring parties, will probably be worse off, but consumers are unmistakably in last place.

Read More about Increasing Bank Fees:

• RonCook.Org: Bank Fees. Only the Beginning…
• My Expert Wallet: There Are Ways to Avoid Those Painful Bank Fees
• The Millionaire Nurse: Banks: Are You Changing Over Charges?
• Lifehacker: What to Look for in a Bank (Besides No Fees)
• Financial Footprint: Banking Fees: Now you see them, now you don’t…Oh wait, there they are again!
• Cambridge Credit: Get Ready for New Bank Fees
• Watch Your Buck: Keep Track of Your Banking Fees
• Business Law Prof Blog: Banking Fees and “the Market”

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