NEW YORK -(Dow Jones)- To offset losses, U.S. banks are raising account fees and penalties - a politically ticklish move at a time when taxpayers have funded rescues of many institutions.
The national median overdraft charge rose 10% to $27.50 over the last six months, according to the latest research by Moebs Services Inc. Previously, the median overdraft charge had stayed flat for five years. Moebs, of Lake Bluff, Ill., surveys fees at nearly every financial institution in the nation, and provides research data to the Federal Reserve Bank and Congress's Government Accountability Office.
"Banks aren't making money from interest rates and account balances due to the economic crisis," said Mike Moebs, the firm's founder. "So they are increasing fees."
Account fees, late charges and other transaction fees comprise a hefty portion of what banks call "non-interest income" - or profits not earned from writing loans and collecting interest.
Some fees at banks have been on the rise for years. But historically, banks have particularly boosted fees during recessions, when losses from delinquent loans soar, says Jeff Davis, director of research at Howe Barnes Hoefer & Arnett, Inc.
And loan losses are indeed soaring.
Non-interest income accounted for about 25% of the industry's revenues last year, according to data from the Federal Deposit Insurance Corp. Service charges on deposit accounts - most notably, overdraft fees - was a $39.5 billion business.
But raising fees for customers whose taxes have bailed out the banking industry with hundreds of billions of dollars in aid can also invite a political backlash. Just last week, JPMorgan Chase & Co. (JPM) abruptly said it would refund $3.3 million in $10-a-month account fees it had begun charging to 306,000 low-interest-rate credit card borrowers in January.
The New York bank told Dow Jones Newswires it had targeted borrowers who had made "little progress" in repaying their loans.
On Monday, New York's Attorney General Andrew Cuomo said regarding JPMorgan's fees, "Truth-in-lending laws prohibit this very conduct."
Banks can generate higher fees in more subtle ways than creating new charges, or raising headline prices.
This week, for example, Bank of America Corp. (BAC) plans to increase the maximum number of overdraft charges that it will charge a customer on any given day. It will soon charge up to 10 fees per day, at $35 apiece, up from the current maximum of five.
The Charlotte bank also did away with fee discounts for rare and first-time offenders. A spokeswoman for the bank said it nixed the tiered charges "to simplify our fee structure."
Those changes could help the bank cushion its bottom line further against rising loan losses. Last year, Bank of America collected $10.03 billion from service charges, up 15.7% compared with 2007.
Congress is considering legislation that could restrict which customers are eligible for charges, as well as limit the ways that banks can process accounts to generate more fees.
It can also be harder for banks to raise fees and charges assessed to loans, since many lending-related fees are regulated or capped by state laws.
Not all fees are on the rise, says Rob Friedman, a director and bank consultant at Deloitte & Touche LLP.
Banks "have not raised up-front fees that consumers focus on at the point of selecting a product, such as annual fees or closing costs," Friedman says. " Instead, they have raised fees that customers don't expect to pay, such as overdraft fees and late payment fees."