What the Rise in Bank Fees Means for Consumers and Fintech

Research shows that bank and credit card fees are on the rise. A move like this poses a serious threat to consumers already negatively affected by the COVID-19 pandemic.

When word of the COVID-19 pandemic spread, anxious consumers fled. Afraid of effects similar to that of the Great Depression or the infamous 2008 financial crisis, U.S. citizens rushed to grocery stores and banks to stock up on food and funds that would have to sustain them if they couldn’t leave their homes for weeks.

Banks’ customer service lines were ringing off the hook, but that didn’t stop consumers from making hefty withdrawals or swiping debits to fill pantries and fridges. In fact, they often knowingly overdrafted if that meant they could feed their families. When worst came to worst, some turned to credit or high-interest loans. They decided they’d just have to deal with the payments at a later date. If one thing was for certain, it was that personal finances were very uncertain.

When the severity of the issue set in, things only became more complicated. Layoffs were seemingly inevitable. Stimulus check deposits and unemployment benefits were lagging. Bank branches were shuttering to minimize person-to-person contact. Many account holders were left only with online banking, a method not accessible to some, or ATMs, not accessible to others.

All things considered, the current administration moved swiftly to pass legislation that would offer citizens some relief. For many, that relief didn’t come quickly enough, though.

Research on the Rise in Bank Fees

Cushion, an artificial intelligence-enabled web app that automatically negotiates bank and credit card fees on behalf of its users, analyzed more than $13 billion worth of bank and credit card transactions. It found that the average combined bank fees and interest charges per person per month have risen approximately 41% between January 2020 and September 2020, showing only a small dip with the onset of COVID-19 in the first quarter.

The average overdraft fees alone more than doubled, from $34 per person per month in April to $71 in August. ATM fees climbed steadily from $2.06 per person per month in January to $4.82 in September. The average fell just a couple of cents in August. While seeing no stark changes since early 2020, interest charges decreased from $38.59 per person per month in February to $30.71 in July. However, the average rose to $36.88 in September.

The FDIC’s Response

In May, the Federal Deposit Insurance Corporation, more commonly known as the FDIC, released an extensive list of questions and resources aimed at helping bank account holders navigate this new reality. Among the questions were:

• I’m concerned about ATM fees increasing as I don’t have access to my bank’s ATM network but need cash due to COVID-19 related issues. Who do I contact regarding this concern?
• Our community is being encouraged to use social distancing to help stop the spread of COVID-19. My bank is restricting lobby access to branching facilities, and I need to go to my bank to get cash and conduct transactions. What should I do?
• Can my bank take the money I receive from the government because of the Coronavirus to pay off negative overdraft balances in my checking account or loans I am late in paying?
• I am using my credit card to fund unexpected living expenses. What if I go over my credit limit?

The responses to each of these questions revolved around consumers contacting their bank to voice their concerns. In each instance, the FDIC also encouraged financial institutions to accommodate their customers’ needs.

In theory, these practices should have resulted in fewer fees. While the FDIC was encouraging banks to create leeway for consumers, prominent senators were also introducing legislation and sending letters to top bank CEOs, urging them to halt certain bank charges for the duration of the health crisis. So why are bank and credit card fees continuing to rise?

The Problem With Banks’ Responses

Many changes were being applied to the banking system at one time and too many customers’ accounts. This made the application of these fee waivers and other relief options very time-consuming and difficult to apply broadly.

“Banks are trying, but they can’t react fast enough,” says Paul Kesserwani, founder and CEO of Cushion. “Banks are like massive ships and cannot turn on a dime, so it takes time for those changes to propagate through the institutions and get applied—which is why customers need to be extra vigilant and stay on top of things themselves.”

Consumer vigilance, while frustrating for many, can, in fact, lead to positive results. If a consumer has the bandwidth to fight for their finances, it could pay off. But if they don’t have the resources, well, then a new generation of fintech apps are in a prime position to save the day.

What Does the Rise in Bank Fees Mean for Consumers

While the FDIC encouraged banks to accommodate customers’ needs, it also required customers to contact their banks proactively. However, many couldn’t call, had to wait on hold for an extended period of time, or flat-out refused a refund. So fees continued to accrue.

Many customers are dealing with intense physical, emotional, and financial struggles right now. However, vigilance may be their only way out.

When possible, consumers should make time to reassess their financial habits. The rise in fees is a broad issue — well beyond overdrafts, ATM fees, and interest charges—and should not be taken lightly.

To aid in stabilizing their current financial situation, consumers can:

Create an ATM plan.

Keep close tabs on when checks are expected to come in. Know when payments are expected to be made. Be aware of what the account balance is at all times and where the nearest in-network ATM is. Without following these steps, a consumer might have to scramble to the nearest out-of-network ATM. This will likely lead to fees. If an account holder gets a fee at an out-of-network ATM, they should contact their bank and request a refund.

Reconsider overdraft protection status.

According to a 2014 Consumer Financial Protection Bureau study, accounts opted into overdraft protection pay on average $21.61 per month on overdrafts while accounts not opted in pay $2.98 per month. Account-holders can change their protection settings to avoid getting lofty overdraft fees. By connecting another checking account, credit card, or line of credit to cover an overdraft charge, they will likely still incur a fee, but it will be lower.

Be aware of how interest accrues, and make the minimum payment.

While one missed credit card payment might just cause a headache, several late payments can have damaging, long-term consequences. Consumers can more effectively plan their payment cycles and minimize spending if they take the time to read the fine print of their credit card agreement and educate themselves on the workings of interest accrual—such topics as simple versus compound interest and the godsent grace period.

They will pay much less in the long run if they make the minimum payment or pay the bill in full. While it’s possible to negotiate interest charges, the success rate tends to be slightly lower than with other fee negotiations, likely because interest is baked into the credit cake, so to speak.

Properly prepare for the fee refund argument to combat the rise in bank fees.

When contacting a bank for a fee waiver, it’s unfortunately fairly simple to get knocked around by systemic policies and unflinching customer service representatives. With a sound argument, it can be more difficult for a representative to deny a refund, especially during this financially trying time. Account-holders should remember to be persistent, polite, and prepared. They should let the agent know if they’ve been affected by COVID-19, are loyal customers, or rarely get fees.

Weigh the option of signing up for a fee negotiation service.

This could be beneficial for consumers who pay a lot in ATM fees, overdrafts, or interest. Most services charge a flat, annual rate or take a portion of the refunds they’re able to get back. For someone who pays hundreds or thousands of dollars per year in fees, a service like this could be key.

And What Does the Rise in Bank Fees Mean for Fintech Companies

Consumers’ financial stresses include outrageous bank and credit card fees, inability to secure a loan, and difficulties with communication. Fintech companies are in a unique position to offer up support in this way.

ATMs will continue to draw in customers, who will inevitably fall victim to one or more of their fee-inducing services. And debit and credit cards aren’t going anywhere anytime soon. Finance apps can securely connect bank and credit card accounts and automatically negotiate for consumers. In fact, this type of service will likely only continue to grow.

The AI-enabled apps on the market today act as an intermediary between account holders and banks, alleviating consumers’ stress, freeing up their time, and leveraging advanced technologies to recoup hard-earned cash that consumers might not have even known they were missing.

Banks, credit unions, and other financial institutions profit approximately $200 billion in fees and interest charges per year. ATM fees themselves are not massive penalties, but overdraft fees and interest charges add up quickly. No matter the fee amount—be it $2 or $200—every refund could save someone from over-drafting on the next transaction or even helping them make their rent for the month.

Image Credit: cottonbro; pexels

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