Battle over bank fees: padding, or real cost?

Somehow, the fees banks charge can really get the customers' goat. They feel exploited, used.

When activist Bruce Marks led a bunch of fee protesters into FleetBoston's downtown branches last week, after blockading the bank's annual meeting for an hour with a convoy of vans, customers applauded, thrust clenched fists into the air, Mr. Marks says.

"When you talk fees, it is a subject based more on emotion than on logic," says John Hull, a spokesman for the American Bankers Association (ABA).

The banks want to cover the costs of a service, whether it is a personal account or an ATM (automatic teller machine) that is available night and day.

An ATM, Mr. Hull says, costs $15,000 to $50,000 to install, depending on its sophistication and location, and $15,000 to $25,000 each year to maintain. Costs include rent, electricity, telecommunications, and cash replenishment.

"This is really about choice and convenience," Hull says.

There are 227,000 ATMs nationwide, far more than the 70,000 branches of the 10,000 banks and savings institutions.

Still, Jake Lewis, who works with Ralph Nader's Public Interest Research Group (PIRG) in Washington, holds that the banks "cannot make any economic justification" for the fees, that they are "a way to pad the profit line."

Marks uses stronger rhetoric, charging FleetBoston, the nation's eighth-largest bank, with being a "feudal landlord," a predator of its customer "serfs."

One thing for sure, bank fees have become a national issue.

Voters in San Francisco last Nov. 2 approved a proposition banning surcharge fees on ATMs. A month earlier, the Santa Monica (Calif.) City Council approved a law barring ATM surcharges. Agreeing with Bank of America and Wells Fargo, a federal district court judge temporarily suspended enforcement of the San Francisco and Santa Monica actions on the grounds that they violated the National Bank Act, which effectively declaws state and local legistators with respect to the setting of fees by national banks.

An appeal of the injunction, supported by nine states, has recently been remanded to the district court for trial.

The fee issue has also popped up in Connecticut, Iowa, New Jersey, and elsewhere.

What bugs bank customers is that the average annual cost of maintaining a regular checking account now runs about $217, notes PIRG's Ed Mierzwinski. At least 12 million families are unable to afford bank accounts.

The ABA's Hall counters that their surveys find that 61 percent of bank customers pay $3 or less in bank fees per month - and that 49 percent pay nothing.

However, some customers paying nothing must keep high account balances or have linked home-equity loans that earn their banks interest payments.

Hall also says ordinary fees on customers generally account for only 4 or 5 percent of a bank's revenues. Interest charges on loans remain more crucial.

Nonetheless, the handsome quarterly profit gains reported by many banks aren't always reassuring to customers. Examples: Bank of America, up 17 percent in the first quarter; Mellon Financial, up 10 percent; FleetBoston, up 28 percent.

Fleet's fee income in the first quarter accounted for $364 million of $4 billion in total revenues. Fee income has been relatively flat for the past five quarters when the numbers for the newly merged BankBoston and Fleet Bank are pooled.

Bank spokesman James Mahoney says that two-thirds of BankBoston's customers will see no change or a reduction in fees when switched into the Fleet system. One-third will see fees rise. On average, the combined bank's fee income will fall.

That's not how Marks sees it, calling the bank "Fee Bank."

But Mahoney charges Marks with a "theatrical exercise." Marks is chief executive of the nonprofit Neighborhood Assistance Corp., which provides "affordable mortgages" to lower-income families across the country. It seeks $500 million from Fleet for those mortgages.

Under the Community Reinvestment Act, Fleet is obliged to serve minority communities in some way. Marks, says Mahoney, is putting an odd type of "pressure" on Fleet to do some of this service through NACA.

Academics say the biggest winners in bank mergers are executives. Fleet CEO Terrence Murphy made $20 million in salary and stock, ex-Bank Boston head Charles Gifford, $15 million.

(c) Copyright 2000. The Christian Science Publishing Society