U.S. banks raise fees to record highs

The economy is tanking, you can't get a loan, your job is in danger (or you've already lost it,) and banks are still afraid of consumers pulling money out of their accounts, so what are the banks doing? According to the Wall Street Journal, U.S. banks are raising their fees to record highs, changing the rules on accounts so that fees are easier to incur, and increasing the minimum balances necessary to avoid fees. One statistic in the article took my breath away: According to Mike Moebs, chief executive of Moebs $ervices Inc., an economic research firm, approximately 90% of banks' consumer-fee income comes from overdraft and insufficient funds charges, and those fees could go as high as $40 per transaction from the current range of $32 to $35.

Overdraft and NSF (insufficient funds) charges are most likely to be incurred by consumers who are already financially strapped, and they can be incurred in ways that a lot of people don't think about. Automatic bill payments are a big one--the amounts are taken out automatically, but if there's not enough in a checking account to cover the withdrawl, and if funds from a savings account or an overdraft line of credit aren't available, the customer gets hit with a big fee. According to the WSJ article, Citibank intends to make money even if you do have funds in a backup account; they're charging some customers a $10 overdraft protection transfer fee for each such transaction.

What I truly don't understand is how the banks can justify these fees. After all, consider credit cards. If you go to a restaurant and you're over the limit on your credit card, the bank simply declines the transaction. There are no additional fees. Why does it cost nothing to decline a credit card transaction and $40 to decline a debit card transaction?

The article suggests that brokerage accounts, online banks and some community banks carry fewer fees, but in general, those institutions service higher-income individuals who are at less risk of incurring the fees in the first place. The major banks are driving customers out of the market, to prepaid debit card services such as Green Dot. For many people, it's become almost impossible to afford a checking account.