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Good Question: Why Are Successful Banks Raising Fees?

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(credit: CBS) John Lauritsen
John Lauritsen is a reporter from Montevideo, Minn. He joined WCCO-...
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MINNEAPOLIS (WCCO) — Wells Fargo is imposing a $3 monthly debit card fee for customers in five states, a move that comes after Bank of America increased its debit-card fees to $5 a month. So, why are banks raising fees even after reporting record quarterly profits?

“It seems like they are already doing pretty good. Why do they need to hit the little guy up for more money? This doesn’t seem right,” said one bank consumer.

Democratic Sen. Richard Durbin of Illinois recently sent a letter to Wells Fargo, calling the bank “disingenuous” for raising debit card fees.

John Spry, a business and economics professor at the University of St. Thomas, says the Dodd-Frank bill put a cap on how much banks can charge retailers, like Target and Wal-mart to process transactions. That means banks are getting less money from retailers.

“The banks are looking to replace that revenue with fees,” said Spry.

That’s where the consumer comes in, and the new fees apply to make up for that lost retail revenue. On the flip-side, consumers can now expect to pay a little less at the retailers.

“The consumer is going to pay a little bit less at the retailer and the consumer is going to pay a little more to the banker. So, as economists always say, there’s no free lunch,” said Spry.

That holds especially for the banks. Wells Fargo reported a more than $4 billion profit for the third quarter, but, this week, the bank’s shares fell more than 8 percent.

“The profits being a rear-view mirror and the stock prices more forward-thinking,” said Spry.

That doesn’t mean feelings towards the fees are going to change, but bank customers do have options.

“If you don’t like the deal you have, you can shop around. Look at your financial situation and it’s always best to be an informed consumer and shop around,” said Spry.

Customers can also look at other banks, smaller banks or credit unions.

If customers choose to stay with Wells Fargo, Bank of America and other banks that are doing this, they can avoid the monthly debit-card fee by using direct deposit and by keeping a minimum amount of money in their checking accounts.

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