Should Consumers Embrace Banks' New Scattershot Approach to Fees?

As expected, financial institutions aren't shrugging off new financial regulation, but quietly hiking the costs customers face

Earlier this month, when Bank of America and others reversed their plans to create a fee for debit card usage, some consumers cheered. They felt like their complaints were heard, enabling them to escape additional fees after all. Such optimism may have been a little premature. Banks aren't simply accepting that they will make less money from their retail customers due to new financial regulation. Instead, they're making up that money in other ways, quietly adding new fees for services or increasing the size of other fees that already exist.

A New York Times article by Eric Dash today provides some examples of the fee changes:

Need to replace a lost debit card? Bank of America now charges $5 -- or $20 for rush delivery.

Deposit money with a mobile phone? At U.S. Bancorp, it is now 50 cents a check.

Want cash wired to your account? Starting in December, that will cost $15 for each incoming domestic payment at TD Bank. Facing a reaction from an angry public and heightened scrutiny from regulators, banks are turning to all sorts of fees that fly under the radar. Everything, it seems, has a price.

Who could have seen this coming! Banks didn't want to forgo billions of dollars in revenue after all. This should shock no one.

But is it good or bad for customers? It depends on your perspective. The nice thing about the debit card usage fee was that it was utterly transparent. It would have allowed customers' fees to be a little clearer and a little simpler. For comparison shopping, such policies are preferable.

Instead, consumers will now face lots of different fees, as the NY Times article explains. They'll be harder to keep track of and knowing whether your bank charges more or less money in fees than competitors might be difficult. Still, there could be an argument in favor of such fees.

Before, debit interchange fees -- the fees that got cut through recent financial regulation -- were said to be much higher than the actual costs banks face on debit transactions. If that's true, then they effectively subsidized other services. For example, when a bank creates and mails you a new debit card, it faces a cost. By charging $5 for that new card, Bank of America would now charge the customers more directly for this service.

The nice thing about a la carte pricing is that it can affect behavior and actually end up being fairer than bigger single fees, like interchange. Continuing on with the lost debit card example, if you now face a new fee that you didn't before when you lose your card, then you might be more careful about ensuring that it remains in your possession. If a bank paid for that cost through a bigger catch-all monthly debit fee instead, then customers who are more careful with their debit cards would subsidize the behavior of customers who lose their debit cards frequently.

So fairness may win out after all. But that doesn't mean that banking customers will escape paying more in fees -- it means that they'll pay new or slightly larger fees that they owe based on the services that the use. That might not thrill American consumers, but it may be preferable to the banks whacking everyone with a big new fee just for using their debit card.

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