Don't Fall for This Bank Bait-and-Switch

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Over the last few years, banks have seen their core business model come under attack. Government regulators , merchant businesses, and angry customers are all facing off against Wall Street to stop banks from putting a big price tag on their services.

But banks are fighting back. As quickly as Congress can plug up potential profit centers, banks come up with new ways to make money. One recent money-making idea, though, seems destined to fail -- as long as customers stand firm.

Attack of the killer fees
This week, Wells Fargo ( WFC ) announced it would start charging monthly fees to debit card users in four different states. The $3 monthly fee will take effect in mid-October.


Wells Fargo won't be the first bank to make this move. JPMorgan Chase ( JPM ) recently started a similar test program for customers in limited areas.

Why does your bank hate you?
The new fees appear to be a direct response to the Federal Reserve's limitation on the fees that banks charge retailers when customers use debit cards at the register. The Fed cut the old $0.44 per transaction fee by more than half.

But the problem with this explanation is that many other revenue-increasing bank moves also appear linked to debit card limits and related laws. For instance:

  • Wells, Chase, and SunTrust ( STI ) already stopped offering rewards on their debit cards . Citigroup ( C ) reportedly considered changes to its program earlier this year but didn't take immediate action at the time.
  • Visa ( V ) and MasterCard (MA) have each outlined plans to change the way they charge merchants. Visa has introduced a "network participation fee" whereby merchants would pay greater fixed costs to offset the lower caps on per-transaction charges, while Mastercard has said it prefers a more deal-specific approach.
  • Bank of America (BAC) and Citi were among many banks making major changes to their free checking account offerings early in 2011. The moves will make it harder to qualify for fee-free status.

Rather than trying to see these moves as retaliation for lost revenue from debit-card fees, you should instead look at them for what they really are: a simple attempt to boost profits.

This is what competition's all about
There's no reason to feel outrage toward banks that try to raise their fees. Like airlines boosting fares or restaurants raising their menu prices, banks do the same thing as any other business by trying to make the most money they can. Contrary to what the general public seems to think, all the government bailouts in the world aren't going to turn the banking system away from its capitalist, shareholder-favoring roots.

Instead of outrage, you need to use the weapon that capitalism gives you : the ability to stop doing business with your bank and go to a competitor instead. Big Wall Street institutions are banking on your not jumping ship; otherwise, they wouldn't try to push higher fees through at the potential cost of losing your business entirely.

At least for now, plenty of competitors are ready to snare you away from those fee-grubbers. Whether it's another national banking chain or your local credit union, you'll find that once you look for alternatives, you'll often get much better deals -- not only on credit and debit cards but also on savings rates, mortgage loans, and other banking needs.

As a customer, you owe it to yourself to make these higher fees blow up in big banks' faces. All it takes is a little legwork to find an alternative that treats you the way you deserve.

Give yourself some credit
After years of getting you hooked on the convenience of debit cards, banks are pulling a classic trick: charging you for what you've gotten used to having for free. But you don't have to put up with higher fees. Take your business to a bank that will respect you, and you'll have the last laugh over Wall Street.

Tired of banks that won't pay you any interest on your hard-earned money? Get that money invested today. Take a look at these two small stocks that the government can't afford to let fail even in tough times.

Fool contributor Dan Caplinger doesn't let banks push him around. You can follow him on Twitter here . He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Bank of America, JPMorgan Chase, and Citigroup. The Fool owns shares of and has created a ratio put spread position on Wells Fargo. Motley Fool newsletter services have recommended buying shares of Visa. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy won't cut bait on you.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Banking and Loans , Basics , Investing Ideas

Referenced Stocks: C , JPM , STI , V , WFC

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