"Yay! I got charged a fee."
Most of the time, consumers realize most fees charged by businesses or people are unavoidable, and they cough up the dough being demanded without too much of a fuss. However, when it comes to fees charged on their bank accounts, consumers become red in the face and declare that great injustice has been imposed against them.
What is it about bank fees that make consumers so angry, while other fees don't conjure up the slightest peep? Every day, people shell out their hard-earned dollars to drive on toll roads. When stepping onto a city bus or metro train, passengers pay the fare without thinking twice. And these are public services that are funded by taxpayer money! On the other hand, Bank of America (NYSE: BAC ) and Wells Fargo (NYSE: WFC ) are private enterprises that provide financial solutions to their customers and reserve the right to charges fees, as long as they are clearly communicated.
Are banks just plain evil?
The cries against account fees have surely intensified because these banking products used to be free. Any time you're getting something for fee, you are going to be slightly annoyed when you suddenly have to pay up for the same service. However, these banks are not trying to slip fees past customers and deceitfully pick their pockets. Bank of America clearly states all of the fees associated with its deposit accounts in the product overview section of its website and has a tab dedicated to inform customers which actions can be taken to avoid any fees.
Do these big banks want to annoy customers? No. Despite the obvious missteps most financial institutions took before, during, and after the financial crisis, these institutions are not inherently evil organizations dead-set on wreaking havoc on the American consumer. In many cases, these new fees are a direct response to the changes average Americans demanded. When legislation was passed to limit interchange fees banks collected from merchants, and credit card reform reduced the banks' ability to reprice risky customers, the banks had billions of dollars in revenue swiftly ripped away while all of the expense infrastructure remained.
How support can backfire
Despite the overwhelming support to pass this legislation that stifled the banks' options, many of those supporting the change might not have ever even been hit with a punitive fee. The number of people actually hit with an egregious overdraft fee, when a customer draws on an account with insufficient funds, may have been relatively small in the scheme of a particular bank's customer base. But when those fees went away, banks felt to the pressure to make up that lost revenue elsewhere.
Imagine a 100-spot parking garage. There are rules: If you arrive before 9:00 am and leave before 6:00 pm, then parking is completely free. However, if you fail to leave by 6:00 pm, you are charged $20. On average, let's say 5 people neglected to remove their cars by 6:00 pm each day – so the garage would collect $100 in revenue per day.
After being charged a few times, some parkers begin to complain to fellow parkers about the greedy garage owner and gather enough support to force the garage regulator to enact a rule that doesn't allow the garage owner to charge $20 for unmoved cars.
Having seen his income go from $100 per day to $0, the garage owner is concerned. In order to keep his garage profitable, the owner decides to now charge every customer $1 per day, regardless of when they arrive or leave. This will surely annoy most of the parkers, but their support for the abolishment of the $20 fee may have been misguided and ultimately backfired.
Should banks just give up?
Now, am I suggesting we weep for the bankers that lost out on some revenue? No. But executives at these banks were selected by the board of directors to serve shareholders' best interests. The management teams at these banks cannot just simply shrug their shoulders and say, "Oh well, it looks like revenue is going to be lower from now on" and head to the golf course. These bank leaders have an obligation to shareholders to innovate and find new ways to drive the business forward, and for better or worse, charging new fees is one of those solutions.
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