The 10 Fee Commandments

Sometimes fees make sense; other times they simply don’t.

September 24, 2012

Credit unions everywhere are looking for new sources of income. The challenges: light loan volume, nonexistent investment rates, and fee income as scarce as a conservative Democrat.

Part of the problem is consumers, who’ve shown an affinity to move among financial institutions on a whim.

In fact, the Bank of America debit fee fiasco is a prime example of how not to handle this. From a general perspective, Bank of America was simply reacting to a change in its own economic situation.

James Collins

James Collins is Credit Union Magazine’s humor columnist.

With its interchange income cut dramatically due to an amendment in the financial reform law, the bank’s board of directors attended a planning session in Australia and, over $1,000 per plate caviar, thought they could simply make up for the interchange income loss using a new fee on debit cards.

It’s mathematically simple, but psychologically disastrous.

Consumers reacted swiftly. Account closings shot up 20%, with many consumers going to credit unions and community banks that promised “low” or “no” fees.

I won’t get into whether or not Bank of America really needed the fee income to put gold fixtures in its executive washroom, but all financial institutions have fees.

Unfortunately for Bank of America, it violated several fee “commandments” for financial institutions, including:

Fee equity is a very hot topic today. The problem is that consumers—used to having free checking, free debit cards, and free coffee—don’t understand the economics of these products. Attempts to educate them through mandatory fees are doomed to failure.

To consumers, “free” is a very powerful word.

JAMES COLLINS is president/CEO at O Bee Credit Union, Tumwater, Wash. Contact him at 360-943-0740.