Hidden Bank Fees — A Quiet Epidemic Costing Americans Billions

The nature of numbers is strange. Make them too big (e.g. Americans paid $33 billion in overdraft fees last year) and they lose all practical context. Say “nickel & dime”, on the other hand, and the phrase is quaint and lacks impact. Nickels and dimes are the loose change that rattles annoyingly in the bottom of your purse or pocket.

The truth is, the nickel and diming of Americans in the form of bank fees has now ballooned into a qualified epidemic. It’s hurting people at a surprisingly wide range of income levels, yet it often goes unnoticed.

On average, Americans pay about $300 in bank fees every year, and one in ten pays more than $1,000. That’s according to data from BankFeeFinder.com, a new service introduced today by the team at Chime. Maybe $300 doesn’t seem like much to some of you, but consider that 60% of Americans have less than $500 in savings.

These two statistics together reveal the big problem with consumer banking in the U.S. It begs the question: why do banks charge so much in harmful fees versus helping their customers avoid them? In Silicon Valley, we call this an industry ripe for disruption.

There are now a number of online and mobile banks, like my company Chime, that offer no or low fee alternatives to traditional banks. But the vast majority of Americans still bank with institutions that profit heavily from fees buried in pages of fine print: maintenance fees, minimum balance fees, transfer fees, overdraft fees, international fees, ATM fees, etc. The list goes on.

One reason that traditional banks charge these fees is the high overhead cost of physical branches: rent, staff salaries, and lollipops — it adds up. Even if you rarely set foot in a local branch (definitely true for most millennials), you’re paying for the physical footprint of a traditional bank.

But overhead is just one part of the story.

Sadly, consumer banking has become increasingly unfriendly to consumers. A few decades ago, most banks were neighborhood businesses serving local communities, but today’s big banks are mega-corporations far removed from their customers. As these “big banks” have grown through consolidation and mergers, they’ve found new ways to charge fees. For example, they figured out how to offer services like overdraft “protection” that in reality help banks profit from customers’ confusion, misfortune and mistakes. As Lisa Servon said in a recent interview about her book The Unbanking of America, “banking became about tricking people and figuring out how to manipulate and deceive them.”

And it’s become big business. Those tricky fees earned banks $33 billion last year from overdrafts alone.

According to the data we’ve collected at BankFeeFinder.com, overdraft fees make up the majority of the $300 people pay on average each year. The Consumer Finance Protection Bureau (CFPB) did the math and discovered that the average overdraft fee is $34 and equates to a 17,000% loan on the overdraft amount. To make it worse, according to a Pew Charitable Trusts study, more than half of overdrafters didn’t even know they were enrolled in a so-called protection plan. And, 68% would prefer to have been declined rather than incur the fee.

What this research shows is that instead of protecting customers, banks are profiting mightily from causing this confusion. And with billions in profits, there’s little incentive for banks to help you avoid fees.

Except one: keeping those customers. Given so many people are hurt by the institutions they’ve entrusted to protect their money, it’s no surprise that our research found the average Net Promoter Score (NPS) score for banks is -6. Translation: most people would not recommend their bank to a friend.

That’s true even though most people dramatically underestimate how much they’re paying in bank fees. When asked by Common Cents Lab how much they think they pay in fees, people estimated only $5 per month on average, about one fifth of the actual average.

As more people uncover how much their bank is really costing, they may decide it’s finally time to make the switch. Of the thousands of Bank Fee Finder beta testers, many have been shocked by what they’ve found:

Real reactions from Bank Fee Finder beta testers.

I encourage you to check out Bank Fee Finder yourself to see how these fees may be affecting you. It lets you uncover what you (and others, on average) have actually paid in ATM, overdraft, monthly, and other fees. If you think it could help others too, or simply want to share your shock or displeasure, please share on Facebook or Twitter with the hashtag #WTFee.

Shane Steele, VP Marketing — Chime

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