BANKING TERMS PRACTICE INTRODUCE NEW FEES CHARGES
22 October 2015 - Bachir El Nakib
DEFINITION of 'Bank Fees'
Many banks charge nominal fees for various services, such as requesting a deposit slip or counter check or notarizing a document. Bank fees generally constitute a major portion of revenue for the bank, particularly for regional and local branches.
Banks are chasing and “gouging” their retail and corporate customers with hefty new charges, overdraft fees and service cuts to pump up revenue losses due to less loan making, according to investigators.
In addition to tossing out branch voicemail and new-customer enticements such as free toasters, and implementing stiff overdraft and account maintenance fees, bankers are also sponging customers with a ledger full of new and nauseating charges, critics charge.
There has been a migration towards fees for services and away from revenue-generation through interest on loans. In general, that has been of concern to consumer advocates.
Many banks are reporting record profits — despite a hostile regulatory environment and near-zero interest rates that crimp some traditional forms of banking.
But this profitability often comes at the expense of branch staff and service reductions, say critics, who cite the introduction of direct and indirect charges that were once unthinkable.
The term bank charge covers all charges and fees made by a bank to their customers. In common parlance, the term often relates to charges in respect of personal current accounts or checking account. These charges may take many forms, including:
- monthly charges for the provision of an account
- charges for specific transactions (other than overdraft limit excesses)
- interest in respect of overdrafts (whether authorised or unauthorised by the bank)
- charges for exceeding authorised overdraft limits, or making payments (or attempting to make payments) where no authorised overdraft exists
Much of the following discussion relates to the UK personal current account market.
Monthly account charges
Banks may charge their customers a fixed monthly charge for the provision of the account. In the UK, this was not common practice until the 1990s when banks began to introduce this type of bank charges as a means of product differentiation - often offering additional services bundled with the bank account itself (e.g. travel insurance, mobile phone insurance, preferential rates on other products).
Charges for specific transactions
Until the 1980s, most banks in the UK charged for all transactions. A number of newer entrants to the personal current account market took a "no fees whilst in credit" approach, leading very rapidly to a situation where no bank could compete with others without offering the same deal.
While the loss of income incurred was, to some extent, covered by the interest earned on carrying balances in current accounts, the banks' profitability on personal current accounts was severely impacted by this change in the charging structure. In turn this led to the banks' increased use of charges for exceeding overdraft limits as a means of generating their required level of profitability.
Interest in respect of overdrafts
Most banks charge interest to their customers in respect of overdrafts. It is common to charge differentially for authorised and unauthorised overdrafts, with unauthorised overdrafts often bearing an interest rate two or three times higher than authorised ones.
In order to gain customers from competitors, banks will sometimes offer introductory 0% or low interest rates on authorised overdrafts, together with generous initial overdraft limits.
As part of the development of the personal current account market in the UK, certain banks have altered their overdraft charging structure to a fixed daily charge, irrespective of the size of the overdrawn balance.
Charges for exceeding authorised overdraft limits
As banks' income from transaction charges declined, due to the "free banking" that had become the de facto standard in the UK personal current account market and the banks' income from carrying balances fell due to declining interest rates, banks sought to increase the profitability of their businesses by significantly increasing the charges levied for exceeding authorised overdraft limits, or when customers make payments (or attempt to make payments), including direct debits, cheque payments or standing orders, where no authorised overdraft limit exists. Typically banks charged in the region of £25 to £39 for transactions in breach of an authorised overdraft limit, irrespective of the size of the transaction or the degree by which the limit was exceeded.
These charges are commonly referred to as penalty charges, although penalty charges are explicitly forbidden under the law. Many individuals were able to retrieve money paid in such fees through the Magistrates' Courts on these grounds. However this has since been halted by the decision in the case OFT V Abbey. The High Court and Court of Appeal rules that these charges were not penal in nature, and the Supreme Court further ruled that they cannot be regulated by the Office of Fair Trading.
In August 2014 Oliver Foster-Burnell obtained Judgment against Lloyds Bank Plc for unfair terms leading to Bank Charges 
Transfer Redirection charges
A Redirection of Transfer charge is included in bank charges and are only required on specific transfer occasions only. A redirection fee is a bank charge that is only paid to a bank when a mistake is made by another bank and a sum of amount is transferred into a wrong bank account in another bank. This may occur between continents,countries or states. A redirection fee is often expensive when required as the bank requiring this may not have legal rights to freeze the account the funds are mistakenly transferred into. It may also require urgent attention depending on the banking rules of the country and it takes a period of 30–45 minutes for a redirected transfer to be completed. This is normally caused in a Bank Wire Transfer, Telegraphic Transfer also known as Telex Transfer (T/T) and most times, local bank to bank transfer. A redirection fee is only needed to be paid to the bank the funds are in and the bank will have to redirect the transfer to its correct destination. Most banks calculate this type of bank charge according to the amount in question.
Unavailable funds fee
Unavailable funds fee is a penalty fee applied by a bank on a transaction account when a transaction is posted to an account that has negative available balance even though it has a positive physical balance. The fee is distinct from a non-sufficient funds fee as there is a positive physical balance but some or all the funds are on hold meaning that the balance is not yet available.
Bank fees such as the unavailable funds fee are contentious and have been the subject of some debate. Consumer advocacy groups have criticised them as opaque and unfair and that they particularly penalise the poor and fees do not reflect the banks costs. The banks argue that its penalty not a transaction fee. These fees have become a major source of income for banks replacing the traditional account and transaction fees which in many countries have disappeared.
The "unavailable funds" fee, not to be confused with the "non-sufficient funds" (NSF), "overdraft", "exceed hold" or "over-limit" fees, is a fee that results from a transaction that posts to a negative available balance and a positive physical balance, as applied to a Demand Deposit Account; usually a checking account. The fee is typically applied at the end of the business day, as most banks process transactions at the end of each business day.
An account has two distinct balances a posted balance or physical balance and an account balance. The difference is comes from transactions that have been applied to the account but have holds against them. To understand how an "unavailable funds fee" comes about it is important to understand the difference between the two types of balances.
- The initial deposit for opening a basic bank account at Abacus Federal Savings Bank in New York City, for example, is $500 per year for a “low-balance consumer,” according to a study released this month by New York City Comptroller Scott Stringer.
- Wells Fargo charges $125 on money in an account garnished by a court order.
- In a separate fee, Wells charges $15 monthly on dormant accounts in Florida.
- SunTrust hits customers up for $25 if they shut their account within six months of opening. “As if it wasn’t bad enough, you have to pay to speak to a teller at your own bank,” notes My Bank Tracker in a recent note, referring to how some banks charge customers, in effect, to speak to a human teller inside a branch. “You may have to pony up a few extra bucks if you make an in-person withdrawal at another financial institution.”
- Bank of America customers, for example, are hit with as much as a $10 fee to withdraw money from their accounts using their debit card at another bank’s branch. Seemingly nothing is off limits as the bean-counters move swiftly to nickel-and-dime customers.
- JPMorgan’s consumer banking business is shutting off voicemail for thousands of staffers, saving $10 monthly per employee, or $3.2 million annually.
- Some banks are slapping on fees for routine investigations on bank statements. TD Bank bills customers $25 an hour to research disputed charges on accounts.
- Citibank has a new $5 charge for dispatching copies of paper statements, deposit tickets and other records.