15 Ridiculous Ways Banks Are Ripping You Off

Regardless of what their catchy jingles say, banks are not on your side. They are businesses that have one purpose: to generate as many profits as legally possible. This is something they happen to be spectacularly good at, as the top five largest and most profitable public companies in the world are all banks.

This creates a conflict of interest. You want to keep as much of your hard-earned cash as possible and so do the banks you trust with your money. It’s no surprise then that banks sometimes drift from the fine line of what is legally and ethically acceptable and start shafting their customers.

Related article: 10 Ways to Tell If Your Credit Card Sucks

Here are 15 ways your bank is ripping you off. You may not always be able to do much about it, but, hey, at least you’ll know it’s happening.

1. By Getting You to Buy Stuff You Can’t Use

Call center

Bank call-center operators are paid to sell financial products, so you expect them to be a little pushy. Everyone has to make a living, right? Sometimes they get a little carried away and sell services to people who don’t qualify for the benefits the services offer.

For example, on July 18, 2012, Capital One was fined $210 million in refunds and fines for selling payment protection insurance that would cancel credit card debt when customers lost their job or became sick. The catch was that some of the clients purchasing the purchase protection were already sick or unemployed and would therefore never qualify to collect a claim.

2. By Jacking Up Fees Without Improving Service

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We’re all used to a little inflation. Who hasn’t heard Grandpa go on about what he could buy with a dollar back in the day? A dollar in 1950 had the purchasing power of $10 today. And that’s okay. According to some economists a little inflation is actually good for the economy. Banks are in a league of their own when it comes to increasing prices.

According to a survey by Bankrate.com, from 2007 to 2012, the average cost of an bank account’s monthly service fee spiked by 142%, the average ATM surcharge jumped by 40%, and the average overdraft charge increased by 11%. Fortunately, banks rewarded customers by offering them great service and displaying exemplary fiscal responsibility during the 2007 and 2012 period.

3. By Targeting the Financially Challenged Among Us

Target

People with lower credit scores and lower credit limits will generally have less cash on hand to deal with emergencies and are more likely to start incurring in late fees and penalty rates. They are also more likely to buy financial products by mistake. Banks know this, which is why they target this demographic particularly hard when selling financial products.

In 2012, the Consumer Financial Protection Bureau (CFPB) fined Capital One $25 million for targeting people with sub-prime cards and lower credit limits. The CFPB’s investigation of Capital One’s marketing tactics showed that customers who called in to activate their new credit cards generally had a 2-minute waiting period. Yet, customers with sub-prime cards and lower card limits had to deal with eight-minute sale pitches from live operators while waiting for their card to be activated. What’s worse, Capital One operators sometimes told customers that services like credit monitoring and payment protection were mandatory.

4. By Not Reporting to the Credit Bureaus

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Banks are not legally required to report all your account activity to the credit bureaus, but they are required to report customer disputes. They’re also required to report payments to the credit bureaus when they promise their clients they will do so. Unfortunately, that doesn’t always happen.

On October 1, 2012, American Express® was fined $112.5 million by the CFPB for not reporting customer complaints and disputes to the credit bureaus. American Express® also deceived its clients into believing their credit score would improve if they paid old debts. The truth was American Express® was not reporting the payments; and even if they had, the debts were so old they didn’t appear on their credit reports or affect their credit scores.

5. By Not Paying Up the Rewards They Promise

travel rewards

One of the best things about using credit cards is you can get free money just by using them. That is, unless banks don’t keep their promises..

American Express®’s Blue Sky credit card promised new customers $300 and additional bonus points if they signed up for the American Express® Centurion Bank program. When it came to paying up, Blue Sky shafted its customers and defaulted on the $300 sign-up bonus. Don’t worry though. In 2012, the Consumer Financial Protection Bureau ordered American Express® to honor its promises and give customers their $300. It must be nice being a multi-billion dollar financial institution. You get caught stealing from your customers and all you get is a slap on the hand and an order to give them their cash back.

6. By Charging Outrageous Overdraft Fees

A bank statement showing an overdraft excess fee arranged fo

We are all responsible for making sure we don’t spend more money than we have. Banks should be able to charge an overdraft fee if an account is overdrawn. However, the overdraft fees many banks charge their most vulnerable clients are so outrageous they would be illegal if they were marketed as what they really are: usurious interest rates on short-term loans.

According to a 2008 study by the FDIC customers pay $17.5 billion a year on automatic overdraft loans worth only $15.8 billion a year. No that wasn’t a typo. Banks are charging over 100% APR on what amounts to a short-term loan. It’s no surprise overdraft fees and insufficient funds fees amount to 61% of the revenue banks make on checking accounts.

Our article 6 Tips to Save On Banking Costs offers ways to avoid all those pesky fees.

BB&T are the worst we’ve seen at this ploy. They charge a $36 overdraft fee for every item charged to your account (up to a maximum of 6 items) and a $36 fee for every returned item. They get paid whether they accept the transaction or bounce it. Not only that, if your account is overdraft for five consecutive business days, they start charging a daily $36 extended overdraft fee. You could overdraft your account by $6 with six $1 items and pay $216 in fees.

7. By Charging Unlawful Late Fees

Missed a payment

If you’re late with your monthly credit card payment, even if it’s only by a day, banks charge you a fee. This is annoying, but legal. The Credit CARD Act allows banks to charge customers with a penalty fee of $25 or less. If the customer already was late within the last six payments, the bank can charge up to $35. However, the penalty fee cannot be greater than the minimum payment. If your minimum payment is $20, the maximum late fee is also $20. The Credit CARD Act was passed in 2010, but some banks seem to have not got the memo.

In 2012, American Express® Centurion Bank and American Express® Bank, FSB were busted by the CFPB for billing customers with late fees based on a percentage of the their debt, which violates the Credit CARD Act. (Source)

8. By Manipulating Interest Rates

LIBOR

Knowledge is money. If you knew how the stock market behaved just a few seconds before everybody else, you would soon be the richest man on the planet. Now imagine what you could do if you decided how the stock market would behave. That is effectively what banks have been doing with interest rates since at least 1991. This surfaced in 2012 as the Libor rate-fixing scandal, which cost consumers billions of dollars.

Put simply, Libor is a benchmark interest rate that is derived from the average interest rate banks charge each other to borrow money. The Libor rate is used as a reference rate for trillions of dollars in derivatives, a market controlled by large banks, as well as for mortgages and student loans. Even small changes in the Libor rate can generate millions of dollars in profits or losses. Traders from major banks like Barclays, Royal Bank of Scotland, and UBS, made a killing by submitting fraudulent rate submissions, which allowed them to manipulate the Libor rate to their whim.

9. By Charging You For Making Money With Your Savings

Savings

Maintenance fee charges on bank accounts are like cigarettes. If someone came up with a product like tobacco today, there’s no way it would be legal. But it’s part of the culture and it’s been around for hundreds of years so we switch off our collective frontal cortex and agree to pay banks maintenance fees for the privilege of allowing them to make money from investing our hard-earned cash.

What’s even more insane is that there’s no cap on monthly maintenance fees. Regulators had no problem capping debit card charges but forgot to do anything about the charges that actually hurt us. Citizens Bank charges customers $50 a month, Sovereign Bank has a $30 fee, and Bank of America imposes a $25 a month. They could all agree to charge $1,000 and there is little you and I could do, except choosing to stuff our cash in mattresses and giving up on checks and credit cards.

10. By Imposing a Minimum Balance Fee

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Sure, you can often avoid maintenance fees by keeping a minimum balance in your account, but for people who live paycheck to paycheck, it’s a tax. Even if you do have the money, being forced to have hundreds of dollars – $6,000 in the case of Citibank’s EZ Checking account – sitting pretty in a bank account that makes has a measly 0.06% interest rate (the average annual percentage interest on savings accounts in 2013) is a rip-off.

By now, you’d be surprised if not all banks were terrible. Check out America’s Best and Worst Banks for some standouts.

11. By Playing Dumb When You’re Hit With Fraudulent Charges

Playing dumb

Not content with running their own swindles, some banks go further and help criminals defraud their customers out of millions of dollars by looking the other way when they see suspicious transactions.

According to a 2013 report by the New York Times, the First Bank of Delaware was forced into a $15 million settlement with the Justice Department for allowing merchants to illegally debit accounts more than two million times and steal over $100 million. First Bank profited handsomely from ignoring blatant telltales of potential fraud by collecting processing and overdraft fees from victims.

12. By Taking 5 Days to Wire a Transfer

Money Transfer

Wire transfers may very well be the biggest banking scam you’ve never heard about. Forty years ago, it would take five business days to send a wire transfer from one account to another. Now we have clever things like email and the internet and it still takes 3 to 5 business days to wire money between banks. Why? Because American banks have chosen to keep a slow and archaic system that still works off COBOL, a programming language so ancient there aren’t many programmers under retirement age that know how to program in it.

This allows banks to charge outrageous fees and invest your money for a week without paying interest. Sending a wire transfer can cost between $25 and $50 and some banks will even charge you for receiving a transfer. Add to that the aggregate of all the cents in unpaid interest that banks make on every wire transfer and you got yourself the recipe for a good old rip-off.

Incidentally, the UK also used to work off an archaic wire transfer system, but consumers complained so much the banking industry was forced to switch it for a new one. It is called the Faster Payments Service and allows Brits to send money instantly, any day of the year, including Christmas.

13. By Inflating ATM Fees

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The real cost to banks per ATM transaction is around 36 cents. Yet, the average out-of-network ATM fee is $2.45 and continues to rise, which explains why banks, in 2007, made $4.4 billion in ATM fees alone (source). There was a federal amendment bouncing around Congress in 2010 that proposed capping ATMs at 50 cents, but – shocker alert – it failed.

14. By Selling Payday Loans

Payday-Loans

You probably already know that payday loans are short-term loans with extortionate fees and interest rates that easily rack up the equivalent of a 300% to 500% APR. What you probably don’t know is that many “reputable” banks also run these scams, and we’re not talking small-town banks either. Big names in banking, such as Wells Fargo and Fifth Third also sell them, they just call them by another name: bank deposit advance loans.

Don’t let the different name fool you, advance loans are every bit as predatory as payday loans. Both payday loans and advance loans are for small amounts of up to $500. Both are secured by the client’s next paycheck, and both have fees of up to $100 per pay period. This 2013 report by the Pew Charitable Trusts sets out the close similarities between payday loans and advance loans.

15. By Charging Made-Up Fees

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It was bad enough when banks just charged high fees for investing your money (maintenance fee) and for letting you spend your money (ATM fees). Now they’re getting creative and charging fees on “services” that used to be free.

U.S. Bank charges a $2 paper statement fee; Wells Fargo makes you pay a $24 processing fee for using your credit card reward points; the Bank of Oklahoma charges a $15 returned mail fee; and the Sovereign Bank charges customers a $15 when a check deposited in their account bounces. Talk about adding insult to injury. My favorite bogus fee is Bank of America’s self-explanatory, but no less outrageous $8.95 human-teller fee.

Bonus Rip-Off. By Delaying the Cancellation of Private Mortgage Insurance

Private mortgage insurance (PMI) protects lenders from the financial loss they suffer when borrowers default on their mortgage payments. It also allows borrowers who don’t have enough savings for a 20% down payment to get approved for loans and interest rates they would otherwise not qualify for.

However, PMIs are expensive and no longer necessary once a homeowner has built some equity, which is why federal law allows borrowers to request a cancellation of their PMI on the date their mortgage is scheduled to drop to 80% of the original value of the property. Just avoiding a few months of PMI payments can save you hundreds of dollars, which explains why many banks are so slow at processing their clients PMI cancellation requests.

The CFPB recently found that banks who service mortgages often use delay tactics when handling PMI cancellation applications because premiums paid before a PMI is cancelled are not refundable.

Banks Aren’t All Bad, but Stay Skeptical

We’re not saying that all banks are bad or that they don’t provide a valuable service to society. Savings accounts, auto loans, mortgages and credit cards are powerful tools when used wisely. However, it’s important to remain skeptical and always remember that banks are businesses that offers valuable services because they turn out a tidy profit, not for philanthropic reasons. Keep that in mind and you’ll have a fighting chance of keeping hold of your savings and even generating a little interest of your own.

America’s Best And Worst Banks

How do you choose which bank fits your personal needs? While many people have had great interactions with their bank of choice, there are still others who swear that dealing with their financial institution is like pulling teeth.

One of the most important things to identify when choosing a bank is what exactly you need from them. Is it low rates and fees you are looking for? Or perhaps top of the line customer service? Maybe you don’t ever want to step foot in a branch in which case you wonder which on-line bank is best for you?

We’ve taken a look at the latest results in surveys and statistics for some of the nation’s largest banking institutions, and made it easy for you to choose which bank is best for you and which ones you may want to stay away from. We’ve broken these down by category as well, so you can be sure whatever you choose meets your personal needs.

Best and Worst Banks in Customer Service

Customer Service

★★★★ USAA

USAA

This bank, which works primarily with military personnel and their families, makes the top spot for overall customer service. USAA (@USAA) offers a full range of financial products and services including checking and savings accounts, credit cards, life insurance, and auto or renters insurance. Anyone can open a free USAA checking account. There are no monthly service fees, checks are free, and you get free unlimited fund transfers to any bank. USAA rebates $15 a month in ATM fees charged to your account by other banks for using their machines. There is also a mobile deposit option which allows you to deposit a check into your account by simply taking a photo of it. On top of all these great services they offer, USAA is well known for having the best customer service representatives, according to their account holders.

★★★ Citizens Bank

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Citizens Bank (@CitizensBank) is one of very few banks that offers customer service representatives who are available to help 24/7, as well as online through instant messaging Mondays through Fridays from 9am to 8pm. They also have traditional branch offices that you can go to if you prefer speaking with someone in person, and their offices are open 7 days a week for an average of 65 hours, nearly 40% more hours than the average American bank branch. This customer service availability put Citizens Bank at the top of CNN Money’s list for banks with the best customer service, as well as scoring very high with a recent American Banker Reputation Institute survey.

★★ US Bank

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US Bank (@usbank) is 4th largest in the US in terms of number of branches available to serve their customers. They offer easy options to have your monthly fees waived, and beat out most other large banks in terms of other fees such as using non-US Bank ATMs. It is also one of the first banks to offer a mobile app that allows you to remotely deposit checks by simply taking a photo. According to CNN Money, US Bank also ranked #1 in terms of employee professionalism and competence in a recent survey.

★ Bank of America

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Once again Bank of America (@bankofamerica) made the top of the list for the 2013 MSN Money Customer Service Hall of Shame, keeping the unfortunate title for its third year in a row. According to a recent survey by American Banker, Bank of America has the worst reputation amongst consumers, far worse than any other bank the publication looked at. It also has the most complaints filed with the Consumer Financial Protection Bureau, with nearly 20,000 in just one year.

Best and Worst Banks in Online Banking

Online Banking

★★★★ Ally Bank

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This on-line only bank beats out the rest of the competition hands down for the second year in a row. Since there is no overhead of maintaining physical branch offices, on-line banks like Ally Bank (@AllyBank) are able to pass those savings along to their customers. Ally offers the highest interest rate for savings accounts at 0.84%, regardless of what your balance is, and also offers interest on their checking accounts as well. To top it all off, there are no maintenance fees whatsoever on their accounts, and not only do they not charge for other banks ATM machines, they will actually reimburse you for any fees those banks may charge when you use their machine.

★★★ Everbank

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Ranked as one of the best on-line banking options in the nation, EverBank (@Everbank) has high yield money market accounts as well as several other on-line banking options to meet your needs. They offer easy and convenient deposit options, don’t charge ATM fees to withdraw money from your account, and even offer to reimburse you for ATM fees charged by others (if you have a minimum balance of $5,000 in your account).

★★ Citi Bank

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In addition to offering some fairly comparable online banking options, Citi Bank (@Citi) also markets insurance products, credit cards and investment options. Their online services division is amongst the best available to consumers, currently helping about 15 million users. On the down side, they do require a minimum balance of $1,500 in basic savings or one direct deposit AND one bill payment each month to avoid the monthly maintenance fee.

★ Wells Fargo

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Ironically enough, in February of this year Wells Fargo (@WellsFargo) was named the world’s most valuable bank brand for the second year in a row, yet its reputation for making it’s millions of customers screaming mad, continues to dominate the headlines. Thousands of customers every year file complaints against this bank for hidden charges and undisclosed fees, making many people feel like they have been ripped off or scammed.

Best and Worst Banks in Loans

Bank Loans

★★★★ US Bank

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Ranked amongst the highest in the industry for home mortgage loans and refinancing, US Bank (@usbank) provides a good deal of useful information on their website which explains the different options you have as a consumer. They also provide mortgage and refinance calculators to help you choose between their fixed rate, adjustable rate and jumbo rate refinancing options, all of which are very competitive compared to other lenders. If you are not in the market for a home loan, US Bank also offers auto loans, boat or RV loans, student loans or personal loans as well.

★★★ JP Morgan Chase

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Chase (@Chase) was the largest lender last year, approving a total of 2770 loans with a total value of over $143,000,000. They recently ranked in the top 5 of JD Power & Associates customer satisfaction survey. There are several special offers available for existing Chase customers on their standard auto loan rates. You can receive a 0.25% discount to your auto loan rate if you have a Chase checking account and an additional 0.25% off if you enroll in automatic payments.  Online payment calculators help manage loan payments and overall online experience is easy and convenient.

★★ Flagstar Bank

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Flagstar (@flagstar) is feeling a big punch lately with its stocks down 76% over the past 12 months alone. Flagstar is also amongst the lowest ranked banks in the JD Power & Associates customer satisfaction survey, and is on the Forbes list of the worst banks in the country. One thing it does have going for itself though is the fact that it offers a wide variety of different products and services to its customers, thus earning itself a score of 9.75 out of 10 on the Top Ten Reviews website.

★ Bank of America

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Amongst the lowest ranked banks in yet another nationwide survey, the JD Power & Associates customer satisfaction survey. Bank of America (@bankofamerica) was also recently involved in a class action lawsuit which alleged that the banking giant systematically delayed and denied mortgage modifications in order to collect additional payments and fees from struggling homeowners, causing many people to ultimately lose their homes.

Read more about personal loans in our reviews section.

Best and Worst Banks for Students

Source: NasaFCU

★★★★ US Bank

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Recently named the best national bank for basic student checking accounts by Money Magazine, US Bank (@usbank) offers student checking with no account maintenance fees. This is a great perk for college kids who don’t always keep a close eye on their checkbooks. They also offer many great mobile banking options including remote check deposit, making it easier than ever to cash that check from mom and dad. U.S. Bank also has 3,080 branches in 25 states, making it easy to access from just about anywhere across the US.

★★★ Citibank

citibank

Citibank (@Citi) close runner up in the recent GoBankingRates survey of best banks for college students in 2014. This is due mostly because of its wide accessibly, student-friendly bank accounts and helpful online and mobile tools. The Citibank Student account is absolutely free for students enrolled in college. It also offers free access to non-Citibank ATM’s, keeping in mind that the students may be away from their normal branch while away at school.

★★ TD Bank

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TD Bank (@TDBank_US) offers the TD Student Checking Account that is free to open and has no monthly maintenance fee or minimum daily balance requirement. The one major drawback to this account is the high overdraft fee of $35 per item paid by the bank, so be sure to either opt out of their overdraft protection or link a savings account to your account to avoid these fees.

★ Chase

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The “student” checking account that Chase (@Chase) offers is really no different than their regular checking account options, other than a slightly lower monthly fee. They offer two different types of student accounts – one for college students and one for high school students. The high school student account must have a parent or guardian co-sign, and they must also have their own Chase account.

Best and Worst Banks for Fees and Charges

Source: USNews

★★★★ Ally Bank

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Ally goes the extra mile when it comes to common fees and charges. For starters, you can use any ATM machine for free. Not only does Ally not charge you to use an ATM, they also reimburse whatever the other bank’s charges are without any limits. You also get free transfers to and from accounts at other banks, and there’s no minimum account balance required to avoid monthly fees.

★★★ PNC Financial

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PNC Financial (@PNC News) is truly making efforts to keep costs down for their customers. Their monthly maintenance fee is only $7.00 which is far less than most others who charge monthly maintenance fees. But they also give you the opportunity to have that fee waived if you maintain a balance of $500 in the account each month. PNC is also at the top of their game with keeping other fees down as well, such as overdraft charges, account maintenance fees, and foreign ATM Fees.

★★ Capital One

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Capital One’s (@CapitalOne) tiered accounts provide options for avoiding some fees. They also reimburse up to $15/month of other banks’ ATM fees, charge no foreign transaction fee, and offer free checks.

★ Wells Fargo

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Ranked far below the top 5 average, Wells Fargo (@WellsFargo) joins Bank of America at the bottom of the list for customer ratings with regards to the fees associated with their accounts. This banking giant charges almost double the national average for everyday banking fees such as wire transfers, monthly maintenance charges, overdrafts, and others.

Learn more about the 15 ridiculous ways banks are ripping you off.