To even odds against banks, bone up on fees you're charged

August 21, 2002|By JAY HANCOCK

ALLFIRST FINANCIAL Inc. is raising fees again, this time on customers who deposit checks that later bounce.

In addition to the annoyance of having somebody pass you bad paper and the headache of not having as much money in your account as you thought, you will pay Allfirst $8.50 per occurrence starting Sept. 8 - for something that wasn't your fault. The previous bad-check charge was $7.50.

By itself the change is trivial. But it will mean thousands of dollars in new revenue for Allfirst, and it is part of a much larger game that pits banks against depositors, a game that banks are getting increasingly sophisticated at playing.

In an effort to help even the odds, I suggest that you, too, bone up on bank fees.

I don't mean to single out Allfirst, which said through a spokesman, correctly, that some of its competitors charge as much as $10 for a bum deposited check.

All banks are raising fees. Since 1995, fees have risen from 35 percent to 50 percent of banks' income, according to R.K. Hammer Investment Bankers, a financial services consultant in Thousands Oaks, Calif.

The change was driven partly by squeezes on banks' traditional sources of profits.

Banks have historically made money mainly on the difference between what they pay for deposits and what they charge for loans. But the explosion of stock and bond business on Wall Street in the past two decades has siphoned off depositors and borrowers, and bankers complain that the profits from loans are increasingly small.

The solution: fees.

Fees on bounced checks, automated-teller-machine transactions and balances below a certain level. Fees on currency conversion, dormant accounts, and late mortgage and credit-card payments. Fees on basic checking, wire transfers, money orders, stopped checks and lost safe-deposit keys.

More fees and higher fees. According to a June study by the Federal Reserve, the average fee nationally for depositing a bad check rose from $4.95 in 1996 to $7.11 last year. The average charge when you write a bad check increased from $15.71 in 1995 to $20.73 last year. The average fee for stopping payment on a check went from $13.68 to $18.08 in the same span.

In the Baltimore-Washington corridor, these charges are even higher: $24.41 last year, on average, for writing a bounced check; $20.24 for a stopped payment; and $10.85 for a bad-check deposit - up sharply from $6.73 in 2000, according to the Fed.

Customers, of course, hate higher fees on principle. But in recent years banks have developed fee extraction to a high and cunning art. They've hired geniuses to write software telling which charges can be raised and by how much to maximize revenue and minimize client defections.

These "decision-sciences" experts claim to know how high to crank the fee-pain meter before diminishing returns set in.

"Decision sciences were not words that the banking business even used 10 years ago," says Robert K. Hammer, head of the firm that did the fee study. "Now there are Ph.D.s who do nothing but that: figure out what to charge which customer ... and when to charge it."

Decision scientists with Ph.D.s have a head start on you, the average schlub. But I must tell you that you have been making their job even easier lately. YOU ARE NOT PAYING ATTENTION.

A study this spring by McKinsey & Co., a business consultant, suggested that many bank depositors are clueless about fees and that, if anything, banks haven't raised fees nearly as much as they could. And I quote:

"Many banks believe that their customers are extremely sensitive to changes in fees and interest rates for retail deposit products. But recent research show that in reality customers are fairly tolerant of such price changes."

Tolerant or ignorant. More than a third of the people surveyed by McKinsey didn't remember the last price increase on their checking accounts. Of the people who did, only 13 percent shopped for a better deal, and only 2 percent switched banks.

The electronic economy has given banks more leverage than ever to pump fees out of depositors. Because of direct payroll deposits, automatic debits and Internet bill-paying, the hassles of firing your bank and finding a new one have grown along with the fees, and banks know this.

None of this is tragic, of course. Except for disclosure requirements, bank nuisance fees should not be regulated by government. But the McKinsey study is a reminder that banks have you in their sights and that you live in a free country.

Check your statement next month. If you don't like what you see, walk. Make the competitive market work. Bank rocket scientists are calculating that you'll swallow higher fees and come back for more. Why not surprise 'em?

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