REP. KENNEDY: These fees are growing at an explosive rate. Today, lenders are charging higher fees for more services, even though they are enjoying record profits and lower costs through technological innovation.

Last year, banks earned $15.2 billion on fees alone. That's an increase of almost 50% from four years earlier, and an increase of over 100% from 1985.

More and more, banks are depending on these fees to boost their bottom line. Ten years ago, fees accounted for about 25% of banks' total income. By last year, fees made up a third of income.

Fees Run the Gamut

The days of full-service banking are over. Lenders now charge consumers a fee for everything but the air they breathe.

Today, they assess a fee for 225 kinds of activities. There are fees for opening an account, closing an account, and moving cash from one account to another.

They have inactive account fees, missing signature fees, and balance inquiry fees. Banks charge consumers for using their ATM cards too much, and for using them too little. They even charge a consumer who innocently deposits someone else's bad check. Banks call these "deposit item returned fees" -- or DIRs for short.

Not only has the variety of bank fees skyrocketed, but so have the charges for them -- even though technological advances have sent costs down, not up. A bounced check used to cost a consumer seven or eight bucks.

Today the average is about $16, and in many cases as much as $20 or $25. Yet the cost of processing a rubber check is a fraction of the fee -- about $2. So, many banks are earning profits of 1,000% or more on bounced checks.

Bank profit margins on ATM transactions are not as high. According to the Consumer Federation, they're only clearing a 78% profit. That's right: 78 cents of every dollar they charge a consumer for using an ATM machine is profit.

That may come as a surprise to many consumers, who may not know that they're being charged for ATM transactions to begin with. In reality, though, they are being charged a dollar or more every time they use an ATM machine that's not connected with their bank.

As for DIRs, they are nothing more than a form of high-tech price gouging. U.S. PIRG [Public Interest Research Group] has found that consumers are being charged an average of over $5 for the misfortune of being stiffed with a bad check.

Punishment Misdirected

In some cases, they may be charged up to $20. That's like being convicted for someone else's crime. It's simply unconscionable that banks would do this to their own customers.

In the 1980s, banks and thrifts lost billions because of bad loans made by people with names like Trump and Keating. Now in the 1990s, they are trying to recoup those losses by nickle-and-diming the American consumer. The bottom line is that they are padding their profits by soaking the depositor.

I have nothing against anyone earning a profit. But if banks want to make money, they should do it the old-fashioned way: by making loans to consumers, not by picking their pockets.

MR. CULBERSON: The setting of fees for services is an issue that I and other bankers struggle with every day. At First National, we have some 25,000 deposit customers and many more loan and trust customers.

We have to win over each one of them every day. We do that by providing a high level of service, convenience, and flexibility at competitive prices.

Mr. Chairman, if there is one point that I would like to make today it is that I cannot -- nor can any banker -- set prices in a vacuum. Competition is simply too great, and today's consumers are far too smart to pay for services that they don't believe provide real value.

Let me expand on this briefly by describing four key characteristics that define the financial services marketplace:

First, bank customers today demand more than just low prices. They demand real value for their dollar, including quality, selection, convenience, and security -- as well as competitive prices.

Second, bank fees and interest rates are determined by intense competition among financial service providers. In fact, there are over 40,000 firms competing for customers' financial business. This keeps fees low and quality high.

Third, banks provide -- in writing -- all fees associated with all loans and all deposit accounts. Banks are subject to detailed and extensive disclosure laws such as Truth-in-Savings and Truth-in-Lending. Consumers have more than enough information readily available to allow them to make informed decisions.

Fourth, competition has created a great many choices for consumers, allowing them to tailor services to suit their needs.

There was a time under Regulation Q when many of us were used to a completely different competitive norm. Under Reg Q, ceilings were set that precluded deposit interest rate competition.

Because banks could not explicitly pay market rates of interest on deposits, they found other ways to implicitly pay higher interest. For example, there were no fees charged on the services provided with deposit accounts, and giveaways like free toasters were common.

But this is not the environment we compete in today. Technology has blurred the lines between different types of financial service providers. A whole host of competitors -- not just other banks -- now vie for my banking customers.

Prices for financial products are now set by a market consisting of 11,000 banks, 2,000 savings institutions, 13,000 credit unions, 8,000 insurance companies, 5,000 securities firms, and 400 investment companies.

Make no mistake about it, even in a fairly small town like Asheboro, competition among these firms is intense. The thousands of products offered by thousands of providers are the most important reason I believe today's discerning value-oriented consumer is well served by the financial services sector.

Unlike the Reg Q days, a free and competitive process guarantees that consumers will have access to a wide variety of services at the lowest possible price.

And because all banks provide -- in writing -- all account fee information on all deposit accounts, consumers have more than enough information for comparison-shopping before opening an account.

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