U.S. banks' fees may send customers to exit doors
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U.S. banks' fees may send customers to exit doors
Thursday September 30, 7:29 pm Eastern Time
By Mary Kelleher
NEW YORK, Sept 30 (Reuters) - U.S. banks are pulling in profits
by slapping fees on consumers for everything from late credit card
bills to overdrawn accounts, but they may lose business as a result.
Banks are charging customers hefty service fees and billing them for bounced checks, tardy
credit card payments and paltry account balances, replenishing their coffers with a steady
flow of fee income, analysts said.
But customers, the more profitable of whom have empty savings accounts and do not pay
their bills on time, are beginning to balk.
``You are starting to see some signs of consumer backlash,' Lawrence Cohn, an analyst at
Ryan Beck & Co. said. ``Consumers have been complaining about the level of bank fees for
years and years, but First USA is the first concrete example in my career where a bank
handled a fee increase so ineptly that people said, 'I'm out of here.'
Bank One Corp. (NYSE:ONE - news) recently announced its 1999 operating earnings per
share would be 7 to 8 percent below Wall Street forecasts because of problems at its leading
First USA credit card operation.
First USA, it appears, had trouble keeping customers who felt they were mislead by teaser
rates on credit cards or excessive fees, analysts said. Bank officials also said the elimination
of a one-day grace period before late fees are charged was part of the reason behind a
higher-than-expected loss in accounts. Bank One has since changed the policy.
``When you look at one of the issues with credit card companies, if you are charging late
fees to the extreme and running your customers out the door, it shows that what is good for
the bottom line isn't necessarily good for onging business practices,' Diana Yates, an analyst
at A.G. Edwards said.
Other bank fees also have set consumers' nerves on edge, analysts and a consumer group
said.
Fee-generating tactics include charging late fees on credit card bills at the earliest possible
moment, then pushing customers up to a punitively high interest rate on the card after two
late payments, said Ed Mierzwinski of the U.S. Public Interest Research Group.
``Banks are shortening the grace periods and raising the late fees,' Mierzwinski said. ``They
are mailing the bill later and making it due earlier.'
Some also attempt to cram other unnecessary service fees onto the bill, asking customers to
pay for credit card insurance and other products, he said.
BAIGlobal, a Tarrytown, N.Y.-based firm that tracks direct mail marketing by card
companies, said on Thursday the consumer response rate to credit card acquisition mailings
in the United States reached a RECORD low in the second quarter, partly because consumers
are becoming more savvy.
``The drop in response rates to new card offers is partly due to savvy consumers who shop
around for new cards and are also learning to consolidate their credit card debt,' Julia
Beaver, vice president for competitive tracking services at BAIGlobal said.
Fees that run as high as $30 a check on overdrawn accounts also are another way banks rake
in fees from customers with barely any money in their account, analysts said.
``Where banks look to increase fee income, and frequently get away with it, is in activity that
is occasional but where they can really whack the consumer, like overdrafts or overlines,
when you charge over your line of credit,' Cohn said. ``Consumers get particularly
aggravated by that charge because the bank actually authorizes it.'
When a customer does not have enough money in an account to cover checks written,
industry consultants also are encouraging banks to pay off the biggest check first rather than
pay them in the order the checks were received, Mierzwinski said. This ensures the rest of
the smaller checks will bounce, creating more fees for the bank, he said.
``There is a certain segment of customers who incur a lot of ATM, service or overdraft
charges and they can be very profitable customers,' Michael Ancell, an analyst at Edwards
Jones said.
A Federal Reserve study released in July found U.S. banks charged their customers more and
higher fees last year, with larger banks in the vanguard. |
