Starbucks gave us the $5 coffee drink, but our big banks have done them one better - they came up with the $35 latte.
It's happened to even the most financially scrupulous. We buy that expensive latte, maybe a payday indulgence, thinking our paycheck has been deposited in the bank account. But the bank debits the account for the latte before crediting the deposit. The result is an overdraft and a $30 overdraft fee. Presto, you have the $35 latte.
As banks struggle to improve profits and emerge from their financial whirlwind, more than ever they're eyeing customer fees as sources of revenue. This year, U.S. banks will make $38.5 billion on overdraft fees alone, says suburban Chicago-based industry consultant Moebs Services.
In the first six months, even as more jobs were lost and paychecks shrank, big banks collected more in customer fees. Financial institutions that reached into taxpayer pockets for billions in bailout money started turning us upside down and shaking out the change.
"They went back to the drawing board to find ways to increase revenue," said Pamela Banks of Washington, D.C.-based Consumers Union.
The top three banks in Greater Cincinnati and Northern Kentucky all posted big increases in fee income from the first quarter to the second quarter. Revenue from service charges on customer deposits, a category that includes overdraft fees, rose 11 percent at Fifth Third, 10.6 percent at U.S. Bancorp, and 8 percent at PNC.
"This is the first time in a recession that we've seen an increase in fees," said consultant Mike Moebs, who's been gathering this data for more than 20 years.
Consumers Union supports regulations that would forbid banks from automatically enrolling their customers in overdraft protection programs and would regulate such programs like credit, requiring banks to disclose the annualized interest rates that fees represent.
Banks no longer make enough money the old-fashioned way, by taking in deposits and then lending the money at a 4 to 6 percent margin, Moebs says. "The business model banks have been using for decades is broken," he says.
That's why he expects no letup in how high banks will raise customer fees - and how many new ones they'll find to levy.