5 Ways Your Bank May Be Ripping You Off

Photo (cc) by HowardLake

You trust them with your money, but they may be putting the proverbial knife in your back.

While some banks go to great lengths to set up friendly neighborhood branches – complete with smiling tellers who know you by name – the fact remains that big banks are big business. And in case there was any doubt, big businesses are all about making big profits.

Banks can be so into making money they sometimes walk the line of what is legal or ethical. Here are five ways your bank may be ripping you off in their pursuit of profits.

1. Misleading you about bank fees

Bank fees, glorious bank fees! If you have ever wondered how banks make money off of checking accounts, this is it. A report from the federal Consumer Financial Protection Bureau found that 61 percent of a bank’s checking account revenue comes from overdraft and NSF fees.

Now, the government tried to protect you from yourself back in 2010 by requiring banks and credit unions to have consumers opt in to so-called overdraft protection programs. Previously, many accounts were automatically enrolled, enabling banks to let your overdrafts go through and charge you a large fee for each one.

However, many institutions were apparently not clear about what overdraft protection entails. A 2012 report from the Pew Charitable Trust found that more than half of those who had incurred an overdraft fee in the past year did not realize they had opted in to the program.

2. Jacking up your costs

Speaking of checking accounts, even if you have a so-called free account, you may be paying significantly more than you were even a few years ago.

Bankrate.com surveys bank fees annually and has found the costs associated with checking accounts haven’t gone up a little; they have gone up a lot.

Check out how much the following fees went up from 2007 to 2012:

  • Average overdraft charge — up 11 percent.
  • Average ATM surcharge — up 40 percent.
  • Average monthly service fee — up 142 percent.

Plus, the minimum balance needed to avoid a monthly fee jumped 365 percent in a five-year period to an average of $723 in 2012. So much for free checking.

3. Looking the other way when fraudulent charges appear

If it weren’t bad enough that banks are increasing their fees and other costs, even worse is the fact that some banks apparently don’t care if their customers are fraudulently charged.

The New York Times came to that conclusion after it analyzed hundreds of court documents this past summer.

According to the report, some banks regularly allow suspicious transactions to withdraw money from customer accounts. Banks that allow such transactions stand to make a lot of money from processing and overdraft fees.

While the report focused on two banks in particular, federal officials told the Times the problem is widespread.

4. Facilitating consumer-gouging payday loans

You may think you are smart enough not to use a payday lender, but don’t be so sure. Some banks offer cash advance products that are essentially the same.

The Center for Responsible Lending says some institutions extend money to customers who then pay it back along with a fee that is the equivalent of up to 365 percent interest. These aren’t small, backwoods banks either. They are big names that include Wells Fargo, Fifth Third and Regions Bank.

Meanwhile, other banks appear to be helping out-of-state payday lenders circumvent state laws by allowing them access to customer accounts via automated clearing house transactions.

For example, payday lending is illegal in New York, but residents may be getting around the law by using online cash advance services. In response, the state this summer asked banks not to allow transactions from known payday lenders.

According to Bloomberg, residents of Maryland and Pennsylvania are taking a different tack by suing banks they say are allowing payday lending transactions.

5. Continuing to mishandle mortgage paperwork

Finally, you’d think banks would have learned their lesson about mismanaging mortgage paperwork. Remember robo-signing and the $25 billion settlement?

But apparently old habits die hard. The Consumer Financial Protection Bureau found that many bank and non-bank mortgage servicers continue to have sloppy paperwork and are missing protocols to guide the handling of key documents.

Other problems uncovered by the bureau include the following:

  • Delays in paying property tax.
  • Delays in canceling private mortgage insurance.
  • Long application review periods.
  • Deceptive communications regarding the status of loan modifications.

How to avoid being ripped off

So now that you know banks don’t necessarily have your best interests at heart – but you already knew that – what are you going to do?

Fortunately, not all banks are bad seeds and there are certainly plenty of affordable and ethical companies out there. To find them, you only need to take a little time to do your homework rather than signing up with the first bank that promises $100 for opening an account and setting up direct deposit.

Try these ideas on for size:

  • Credit unions are member-owned and tend to have lower fees and more favorable policies. See if you are eligible to join one in your area.
  • Consider using an online bank. Like credit unions, these banks tend to have lower costs, and some – such as Ally Bank – will even reimburse you for ATM fees.
  • If you have opted in for overdraft protection, opt out. Do you really want to pay $35 to avoid the embarrassment of having your debit card declined? That is essentially what you are doing with overdraft protection.
  • Avoid cash advance programs that act like payday loans. If you absolutely can’t avoid spending money before your next payday, it may be better to swallow your pride and ask for help from a friend or relative. Doing so also gives you added accountability so you don’t end up in an endless cycle of payday loans.
  • Keep on top of bank and mortgage statements. It would be nice if you didn’t have to think about it but don’t count on the bank to catch potentially fraudulent charges or to pay your property taxes on time. When your statements arrive, open and review them. Every month.
  • Stay on top of loan modification applications. Keep the lines of communication open and think twice before you simply stop paying your mortgage on the promise of a modification.

Not all banks are bad, but remember that all those conveniences they offer come with a price. They aren’t giving you overdraft protection and other services to be nice; they are doing it to turn a profit. Keep that in mind, and you’ll be one step ahead when it comes to beating them at their own game.

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

Read Next
7 Things That Prove Cheaper Isn’t Always Better
7 Things That Prove Cheaper Isn’t Always Better

These items can end up costing you more if you try to go the cheap route.

10 Food Staples That Are Easy and Cheap to Make Yourself
10 Food Staples That Are Easy and Cheap to Make Yourself

Making any of these key foods yourself will improve meals — and your budget.

Half of All Retirees Say They Fear This
Half of All Retirees Say They Fear This

Chances are good that you share this fear. Here’s a way to overcome it.

9 Houseplants That Remove Toxins From Your Indoor Air
9 Houseplants That Remove Toxins From Your Indoor Air

These plants may also do everything from reduce the amount of dust in your home to improve your productivity.

3 Bank Accounts With Perks for Customers Age 55 and Older
3 Bank Accounts With Perks for Customers Age 55 and Older

These checking accounts offer exclusive discounts and other perks — including interest — to older customers.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
Will I Get My Ex-Husband’s Social Security When He Dies?
Will I Get My Ex-Husband’s Social Security When He Dies?

Two factors determine how much money is coming to you.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

21 Things You Should Always Buy at a Dollar Store
21 Things You Should Always Buy at a Dollar Store

Dollar stores have great bargains on these familiar purchases.

5 Household Disinfectants That Can Destroy the Coronavirus
5 Household Disinfectants That Can Destroy the Coronavirus

You likely already have some of these products at home.

6 Reasons I Will Never Trust Suze Orman
6 Reasons I Will Never Trust Suze Orman

Beware: The self-proclaimed personal finance expert has a track record that suggests more sizzle than steak.

20 Things That Are Actually Worth Stockpiling
20 Things That Are Actually Worth Stockpiling

You probably don’t need a year’s supply of toilet paper to survive an outbreak, but consider stocking up on these items.

10 Deep Discounts Available on Amazon This Friday
10 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

America’s Most Reliable Appliance Brand Is a Surprise
America’s Most Reliable Appliance Brand Is a Surprise

Have you heard of this appliance manufacturer?

This Type of Social Security Benefit Is Often Overlooked
This Type of Social Security Benefit Is Often Overlooked

The Social Security Administration is not helping certain people get money to which they are entitled, a report says.

16 Amazon Purchases That We Are Loving Right Now
16 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

Getting These 2 Shots Could Reduce Your Risk of Dementia
Getting These 2 Shots Could Reduce Your Risk of Dementia

These vaccines may lower the risk of Alzheimer’s disease by up to 40%.

9 Everyday Problems You Can Solve With Vaseline
9 Everyday Problems You Can Solve With Vaseline

Forget expensive specialty products. Good ol’ petroleum jelly can address many common annoyances.

19 Purchases That Buyers Almost Always Regret
19 Purchases That Buyers Almost Always Regret

Think twice before buying these things.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

8 of the Worst Things to Buy at a Dollar Store
8 of the Worst Things to Buy at a Dollar Store

Not everything sold at dollar stores is a great bargain or a safe purchase. Here’s our list of products to avoid.

41 Things You Should Never Buy
41 Things You Should Never Buy

Some purchases are just plain dumb. Give yourself — and your budget — a break. Don’t spend money on this stuff.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

9 Indestructible Products That Are Worth the Price
9 Indestructible Products That Are Worth the Price

If you’re willing to pay a little more for these products, you may never have to shop for another again.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.