After everything that banks have taken from the government and taxpayers, it may seem like it's time for the American people to demand something back. But although Congress seems to be taking the opportunity to cash in on anti-bank voter sentiment, the measures that lawmakers are supporting focus attention in the wrong areas.

Bank fees and you
Lately, everyone has been paying attention to the fees that banks charge. Such fees are the bread and butter of profitable banking institutions. Interest-linked income rises and falls with the credit markets, and delinquencies and write-offs offset the revenue from making loans. But fee income keeps coming in regardless of what's happening with interest rates and the overall economy.

Still, in talking about bank fees, the sheer amount of money involved may shock you. Bank of America (NYSE: BAC) reported $11 billion in fees on deposit accounts last year, while Wells Fargo (NYSE: WFC) clocked in with $5.7 billion. Citigroup (NYSE: C) brought in over $1 billion in checking-related fees alone during 2009.

In large part, the government's answer has been to try to regulate these fees out of existence. Overdraft fees have long been a subject of congressional attention, and the Federal Reserve expects to release new credit regulations by the end of 2010 to address the problem. Most recently, the Senate is now seeking to limit fees for using ATMs to $0.50. That's less than a fifth of the average $2.66 that banks charge for ATM fees.

At first glance, taking legal steps to limit out-of-control bank fees might seem to make sense. After all, is it really fair for someone to have to pay a $39 overdraft fee for writing a $10 check that their account balance can't cover? Should anyone have to pay $5 to get money out of an ATM?

My answer is a resounding yes. Here's why.

Unforeseen consequences
What lawmakers seem not to understand is that big banks will find ways to make money no matter how much regulation they have to endure. Trying to limit bank fees is like trying to plug a leaky dam; put your thumb in one hole, and another one pops up somewhere else.

All told, the situation right now is pretty good for people who are responsible with their money. If you want to avoid bank fees, you can. Here's all you have to do:

  • Don't want to overdraw your checking account? Keep some extra money in your account, or keep your checkbook balanced every day so you always know where you stand.
  • Don't want to pay an ATM fee? Use your own bank's ATMs, which are almost always fee-free. Or use one of many banks that pay rebates for ATM fees incurred at other institutions.

From one perspective, high bank fees actually encourage people to act responsibly. In contrast, government regulation that limits fees lets people get away with being sloppy with their finances. That doesn't really benefit anybody.

Even worse, when banks can't charge easily avoidable fees like this, they look for other ways of snaring people. Already, credit card companies hit by reform legislation have taken steps to recover lost revenue. American Express (NYSE: AXP) has added new fees and penalties to some of its rewards cards, while Fifth Third (Nasdaq: FITB) is charging a $19 fee to cardholders who don't make any charges in a given year. Both American Express and JPMorgan Chase (NYSE: JPM) have recently added new cards that charge annual fees simply to be a cardholder.

Let everyone else pay
From a selfish perspective, you should realize that easily avoidable fees like overdraft and ATM charges actually benefit you. Given that the alternative may well be the end of free checking and savings accounts, I'd just as soon have Congress tone down the anti-bank rhetoric and focus its attention on the more important aspects of regulating the financial industry.

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