So You Really Think Banking Fees Are A Service?

by Emera De Los Santos, Lead Fellow

Recently, I worked on a Bank Transparency project where I looked at how accessible checking account information was for some of the major banks. I focused on Bank of America, TD Bank, Capital One, Chase, Wells Fargo and Citibank; each time concentrating my efforts on the most basic checking account they offered. What I found was simply — pathetic. Research shows that lack of wealth is one of the biggest factors for massive inequality in our country. This coupled with the distrust in the banking system that is prevalent within minority communities made it imperative for us to look at what made these banks so inaccessible.

At BlackFem, we are constantly incorporating opening bank accounts and building savings (which increases your net worth) into our curriculum, as such we wanted to make sure our clients knew what was available to them. Each bank provides its potential clients with a description of the products they have available, this is also the case for the basic bank accounts I was looking into. I used these summaries along with customer service representatives in order to compile a guide that would simplify some of this information. Often times, the product summaries provided by these banks had concepts and terms even I could not understand. Moreover, the customer service representatives either could not understand them, or could not explain it clearly. This made me think deeply about the majority of the population that BlackFem, Inc. works with, which may not have experience dealing with complicated text as I, a college student do. So who exactly is supposed to understand what is meant by these obscure terms? And why haven’t these banks made sure that their potential clients are able to comprehend the services they are offering them? But even more so, is charging a fee to a potential client who cannot afford a bank account (which in and of itself seems unjust) even a service?

One of the most common reasons why people decide against opening bank accounts is the high costs associated with them. Of the 6 major banks I researched, Capital One was the only one that didn’t have a monthly charge for its most basic account. [Though I have recently continued my research and found that Charles Schwab also offers fee free banking, which can be a nice alternative especially if you are looking to open an investment account one day.] The others had monthly fees that would cost clients anywhere between $72 — $144 a year just to cover the compulsory monthly fee (and trust me, those are not the only fees you are likely to face). A few years back it was rare to see a bank charge a monthly fee or demand that the account have a minimum balance in order to waive the monthly fee, but it is now a common phenomenon. These banks are also charging clients over $30 for each instance that their accounts are overdrafted. Most of these banks offer programs that “protect” you from overdraft fees, but these are services that cost money. Frankly, rather than calling it protection, it should really be called a penalty. What is more troubling, is that I was not told that overdraft “protection” was something I needed to opt in to. Recent regulation has mandated that overdraft “protection” be something we must opt in to for the sole reason that automatic enrollment led to excessive bank fee accumulation. Doing this guarantees that the banks are able to profit as much as possible from the lack of funds available in their client’s accounts. Add debit resequencing into the picture, a method most banks use to increase the likelihood that you go into overdraft by clearing larger debits to your account first, and imagine how many fees you can trigger. This is a direct attack on clients who come from low-income backgrounds as they are the ones who are exponentially more likely to have insufficient funds charges on their accounts. So who is really protected?

These banks fall under the umbrella of the financial services industry but the services component is rather lacking if not nonexistent. Despite their claims that they are here for the consumer, these major banks are seemingly only here for themselves. In order to truly claim that they are providing financial services to the communities we are serving, there needs to be a complete restructuring of how these services are presented to their clients on behalf of these banks and a reconsideration of why fees are charged at all. Yes, banks need to make money, but is it worth impoverishing low income people even more?