Citibank Raises Fees

http://www.futureofcapitalism.com/2010/09/citibank-raises-fees

How is President Obama's financial "reform" affecting consumers? A good example can be found in an August 31, 2010 letter that Citibank sent to its customers and that has been obtained by FutureOfCapitalism.com. The letter says the bank is slapping a $240-a-year fee on accounts with balances of less than $6,000, and that it is raising fees for withdrawals at non-Citibank ATMs to $2 from $1.50.

From the letter: "Citibank Account Package customers will continue to earn a monthly maintenance fee waiver by maintaining a combined average monthly balance of $6,000 or more in linked accounts. If you do not meet the balance requirement for a waiver, the monthly maintenance fee for the Citibank Account Package will be $20."

More from the letter: "The Non-Citibank ATM Fee will change from $1.50 to $2.00 per withdrawal...For those accounts that previously received reimbursement of fees charged by other banks for using their ATMs. these reimbursements will be discontinued."

The letter gives no explanation for the fee increases.

Look, no one is forcing anyone to be a Citibank customer. But a $240-a-year fee on a checking account with $2,000 or $5,000 in it is pretty steep by banking industry standards or as a percentage of the funds in the account. It has to dwarf the bank's marginal cost of maintaining the account, which mainly consists of printing and mailing the monthly statement (for those customers who haven't "gone green") and whatever telephone service center (which is offshored anyway) or teller time is used. As for the ATM fees, they amount to a 33% increase, and, if you add the $2 fee that the bank whose ATM it is probably charges, a customer could wind up paying a 4% fee to take out $100 of his own money.

The lawmakers have taken aim at what they judge to be "abusive" practices of banks toward subprime borrowers or those who pay overdraft fees. But the consequence seems to be that the banks are going to try to squeeze more revenue out of their customers who don't bounce checks and who may have fine credit but just keep a low balance in their checking account. This may be Congress or the Obama administration's definition of "consumer protection" but it's not ours.

We're free market capitalists here and we support a bank's right to charge its customers whatever fees it wants. Anything else amounts to price controls. As we said, nothing (other than the hassle of closing an account and opening one elsewhere) is stopping a Citibank customer from moving his money to a bank or credit union that offers a better deal. The bank may have analyzed its operations and found that these low-balance accounts are responsible for a disproportionate, or even loss-generating, amount of expense relative to the revenue they generate from investing the deposits at today;s

What's outrageous, though, is the politicians patting themselves on the back for passing financial "reform" while the government still owns 18% of Citigroup and the bank is treating customers this way. The politicians and regulators may well respond by trying to get Citi to roll back these fee increases (though they may want them implemented so they can eventually exit their 18% stake at a profit, demonstrating the conflict of interest inherent in a bank being owned by its regulators). We'd settle for the politicians and regulators just stopping their posturing as the protectors of consumers.

by Ira Stoll  |  Sep 2, 2010 at 8:07 am Related Topics:  Banking, Capital Markets Regulation, Government ownership, President Obama receive the latest by email: subscribe to the free futureofcapitalism.com mailing list