December 8, 2023

Your Money: 5 New Ways to Think About Companies’ Nuisance Fees

First, it’s now been lampooned in the form of a video on the Funny or Die site. In that clip, a fake Bank of America ad quotes customers thanking the bank for not burning down their houses or torturing their families in a dungeon.

Second, it has induced a new wariness among companies in entirely different industries.

“We have the Bank of America fee top of mind,” said Bill Kula, a spokesman for Verizon. “Part of my role is to get in front of executives and say ‘Do you want your head chopped off if you do this?’ ”

And all because Bank of America tried to fully disclose the $5-a-month fee. Given the relatively small size of the fee, it’s pretty clear that something else is going on here, an “end of our rope” consumer declaration that a new set of rules for fees is necessary.

So this week, I rounded up the most discerning consumers I know to write those rules with me. We’ll start with five, but please come to our Bucks blog over the weekend and add to this list.

COST OF THE SERVICE For Philip Friedman, a consumer lawyer in Washington, the discussion starts with a three-pronged test of whether the fee is reasonable: is it fair, is it disclosed and do you have a choice about paying it?

Fairness is the least clear, but Robin Block, a retired actuary in Manhattan, argues that the fee must have some relationship to the actual cost of providing the item or service.

By that definition, the 3 percent currency conversion fees that credit and debit card issuers levy are unfair. Ditto the $10 or so a day that rental car agencies charge for GPS devices that retail for $100.

Bank of America’s effort to charge $5 a month for debit cards is an interesting case study in this context of cost, given that it said that it all but had to add the fee because of new rules that limited what it could charge merchants for accepting the cards.

What the bank was really doing was trying to equate “making less money from merchants” with “costing the bank more.”

But the new debit card regulations alone are not what threaten the bank’s profitability. Far from it. “Everyone who watches them knows they’re less profitable for all kinds of reasons,” said Dave Hanson, a money manager based in Seattle. “The debit card became less profitable, but it’s not costly. It didn’t go negative.”

LEVEL OF VITRIOL The fact that a mere $5, equivalent to a couple of trips to the wrong A.T.M., set off this firestorm suggests that something else may be going on.

Ken Gallaher, a retired chemist in Bartlesville, Okla., calls it the “It depends on what I think of you” rule.

After several years of bailouts, ill-timed executive bonuses and mortgage shenanigans, any bank executive would have to be tone-deaf to stand up and demand that consumers pay a fee for access to their money. Besides, it was the banks themselves that pushed people into debit cards in the first place.

So the bar for outrage is lower for banks and industries that frequently irritate their customers. If you’re a bank executive, well, life is sometimes unfair like that. But if you’re a consumer, it means that uprisings over bank fees have a better likelihood of success.

THE TRUTH Airline baggage fees were never about the cost of fuel. Sure, bags are heavy. But if the point was to reduce weight and not make a bald grab for revenue, then the airlines would weigh people in with all of their belongings and charge accordingly. Or at least they would charge a fee according to the stuff you bring, wherever you stow it on the flight.

Airlines are not like banks, however, in one important respect: If you want to fly nonstop or fly at a certain time or be guaranteed a particular seat, you may not have much choice in carriers. And so the industry continues to get away with fees that make no sense.

Take fuel surcharges, which don’t seem to depend on the actual price of oil and were questionable in the first place. “I have an M.B.A. and I’ve worked in airline marketing, and it was always my understanding that fuel was part of the cost of doing business,” said Tim Winship, who oversees “There is something incredibly disingenuous about these fuel surcharges. The whole thing is just so fundamentally dishonest.”

THE VALUE We consumers are not all whiners, though sometimes it may appear that way. In fact, many of us would gladly pay fees for new products or services that offer real convenience and delight.

Few people are complaining about fees to use the wireless Internet on airplanes, except those who book certain flights specifically because the service is available only to discover that it is broken or the airline has switched to a different plane at the last minute.

And while I’m glad my bank doesn’t charge me for depositing a paper check using a picture I take of it with my mobile phone, I’d gladly pay for this service and don’t begrudge U.S. Bank for charging it.

A fee to use a spacious, well-equipped hotel gym seems fair in this regard, as would a fee to talk to a bank teller, though consumers have revolted against both types of fees in the past.

Mr. Hanson of Seattle said he would pay to reach a competent customer service representative immediately in certain circumstances. He also pays to reserve a spot at crowded classes at his gym, even though the classes themselves are supposed to be free. That way, he doesn’t have to come 20 minutes early to be sure he can get in. This, too, seems fair, though more expensive clubs probably couldn’t do it since they should be guaranteeing space in classes in exchange for their higher monthly dues.

PERSPECTIVE However symbolically irritating Bank of America’s move was, we focus on smaller fees at our peril. The biggest potential hit on the fee front probably comes from your investments, where mutual fund fees can quietly rob you of enormous piles of money over time.

Think about it this way: If you have $100,000 invested in mutual funds in a 401(k), a difference of half a percentage point in annual costs, say fund fees that are 0.75 percent instead of 0.25 percent, will mean a loss of $500 a year. All of your bank and baggage fees probably won’t add up to that.

So rather than occupying a Bank of America branch, people who are lucky enough to be employed and have a retirement plan ought to be staging a sit-in in the office of the person who runs that 401(k) plan.

And if you’re managing the money yourself? It’s nice to get a note like the one Mike Sanislo, a consultant in St. Paul, got from Vanguard recently. It showed him how much he would save if he were invested in a different class of mutual fund shares.

Or you could turn to a maverick like Randy Kurtz, who runs about $10 million for high-net-worth investors in his Alpha-Enhanced Index portfolio. He gets nothing if he fails to outperform the Standard Poor’s 500-stock index. In 2010, he didn’t hit that mark, though in the four other full years of his fund’s existence he has. In those years, he kept one-third of the investment gains beyond the benchmark as a fee.

While I would not bet on his continued outperformance given how hard it is to beat any investment index over time, you have to admire his chutzpah. If only the rest of the world of consumer affairs offered the option of paying nothing in fees unless the performance was extraordinary.

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