The Great ATM Robbery

You've got to hand it to the bankers. (Actually, we pretty much already have.) They blow themselves and the economy up while paying themselves grotesquely large salaries. Then, working with government officials, they figure out multiple ways to get taxpayers and customers to fund their recapitalization. First, the government shored up banks' balance sheets by purchasing stock through the TARP's capital purchase program. Then the Federal Reserve handed the bankers a gift by slashing the Federal Funds rate to zero. (Free money!) Then the Federal Deposit Insurance Corp. agreed to guarantee debt issued by banks, thus allowing them to borrow hundreds of billions of dollars at low rates. Meanwhile, with interest rates at Dead Sea levels, Americans with balances in their checking and savings accounts are essentially lending cash to banks for nothing. (Click here to follow Daniel Gross)

And how does the industry that has received so much largesse from taxpayers repay the public? By jacking up fees for basic services. According to Bankrate.com, the average surcharge for using a money machine rose from $1.78 in 2007 to $1.98 in 2008. It's probably higher now. Last week, when I stopped payment on a check, I was astonished to find the charge was $32—about what it costs to sponsor a child for a month through Save the Children. Meanwhile, consumer complaints about being hit with massive and repeated overdraft fees have led to threats of congressional action.

The reality is that banks feel they have no other choice. NEWSWEEK's Steve Tuttle recently argued that the outrage over overdraft fees is overdone because people incur them only when they spend money they don't have. Of course, banks are in the business of enabling just that sort of activity. They lend money to businesses and consumers to spend on stuff—cars, factories, houses—for which they can't pay cash. The problem for the banks is that the demand for that core business of spending money you don't have is way down. Businesses grappling with excess capacity aren't exactly demanding loans. Consumer credit has actually been falling, according to the Federal Reserve. Housing? Forget about it.

Banks need another way to generate cash, and, increasingly, they're doing so by levying larger fees. It's difficult to quantify the amount banks are earning from hitting people up who use ATMs or who overdraw their accounts. According to the consulting firm Oliver Wyman, via the Financial Times, U.S. banks earned $34 billion in fees from accounts with "insufficient funds" in 2007. "Before the financial crisis, such fees provided almost a seventh of the industry's pre-tax net operating income," the FT notes. The Washington Post reported last month that overdraft fees alone could total $38 billion this year.

The increase in fees is part of a great economywide readjustment in which many goods and services that used to be essentially free during the credit orgy now cost money. But some banks are clearly readjusting more than others. In July, Eric Dash reported in the New York Times that "the nation's biggest banks—those that received the biggest bailouts from taxpayers, and are once again gaining strength—charge fees that are on average at least 20 percent higher than those at smaller lenders."

It's hard to determine precisely how much banks are making on annoying fees. According to the FDIC's most recent quarterly survey, noninterest income rose 10.6 percent between the second quarter of 2008 and 2009, from $121.5 billion to $136.1 billion. But that figure includes money earned from trading and getting involved in buying and selling assets—not just revenues from nailing people with $32 check-stopping fees. Most banks don't break out those fees as separate line items. The most recent quarterly report from the nation's largest bank, JPMorgan Chase, said "lending & deposit-related" fees were $1.77 billion in the 2009 second quarter, up 60 percent from the 2008 second quarter. (Note that deposits rose only 20 percent in that period.) That $1.77 billion constituted a small fraction of the bank's nearly $13 billion in overall noninterest revenue.

Faced with public anger and the threat of congressional action, some banks are reining in overdraft fees. (Here's Chase's Sept. 23 announcement.) But higher fees are likely to be with us for a while. America's banks desperately need to build up profits and reserves—some to pay back the government, some to shore up their balance sheets against further losses. And we're probably going to keep paying them. For the factors that have made banking much more convenient in recent years—direct deposit, automatic bill payment—make switching accounts more of a hassle than ever before. Banks are essentially betting that the force of inertia outweighs the burden of high fees. Like so many bets that the financial sector has made in recent years, it's a wager that the banks are likely to win and the public is certain to lose.