Debit Card Fees Run Rampant - Are You Being Hit?

Check your bank balance carefully. Are there mysterious fees lined up near your debit transactions? Your bank may be charging you for using your PIN without you knowing. Using your card as debit and punching in your PIN might seem more secure, but you could end up paying ridiculous amounts of fees every month. Using your debit card as a credit card, sometimes called signature debit, imposes no extra fees on the user.

A U.S. Bank customer named Heidi Hansen was interviewed by MSNBC. She just recently noticed mysterious 25-cent fees appearing on her statement, and is shocked that the bank she's been using for ten years would impose these fees without warning her.

Why do banks do this? Simple: they are legally able to skim about 2% off of signature-based transactions. On PIN-based transactions, they take a much smaller amount. To help offset the profit loss caused by PIN use, they are charging fees to their customers.

Some people are aware of these fees, and seem to think there's nothing they can do about it. However, only 14% of banks impose these kinds of fees. Look for local banks, or conglomerates that don't (yet) charge PIN fees, like Bank of America. If you're paying a per-transaction fee, a flat monthly fee, or have a limit on the number of transactions per time period without fees, your bank is charging you too much.

Most customers would want to know about this before they make a purchase. In a report to congress on this situation, merchants expressed dissatisfaction with the idea of "point of sale" disclosures. Since banks are imposing these fees, not the merchants themselves, they do not feel responsible for notifying the customers before they choose a payment method. It would slow down their lines and anger customers. They also point out that PIN sales are more secure than other plastic payment methods; is it really a good idea to discourage people from using PINs?

Merchants also expressed concern that bank statements do not make it clear who is imposing the fees. Some have received angry calls from customers, thinking that the merchant is responsible for the surcharge. Since merchants can legally add fees to debit more easily than to credit, the practice is common in smaller stores and many customers don't believe that it is the bank charging the fees.

Unsurprisingly, banks who commented on this report strongly disagreed that the status quo needed changing. They felt that disclosures in the fine print when customers set up an account are enough. While most banks choose to itemize these fees on the statements, they also believed that itemization should not be required. They agreed that merchants should not be responsible for additional disclosure, since they felt none was needed. They did not address the issue of service changes, such as Heidi Hansen experienced.

In the report, consumers agreed that disclosure was inadequate. They suggested that banks should make it clear where the fees originated, and total them for the year to let customers know exactly how much they are spending. Like Heidi, they feel it is unfair to impose these fees without letting long-time customers know.

Here's how to save yourself from unfair fees.

1. Don't use your PIN - swipe your debit as credit.

This is the simplest solution - banks don't charge fees for signature debit.

2. Use a credit card.

Pick one with no annual fee, and pay it off every month - you'll never pay overdraft fees again. Make sure to get a reputable card; if this is your first, the APR will probably be in the mid-to-high 20s until you establish your credit. Using a credit card is more secure than using debit for several reasons. Chiefly, if you are fraudulently charged, you are not actually losing money from your bank account. Waiting for a refund on a credit card is much less painful than waiting for a refund on debit.

3. Don't think your bank charges you? Keep a close eye on your statement.

Banks can often change their terms of service without notifying you. Check your bank balance often to make sure that these fees are not being imposed. To stay completely safe, use the methods above, even if you think your bank won't charge you.

Some banks and credit unions recommended by consumers to avoid fees include Commerce Bank, Bank of America, Wachovia, Westpac (Australia), WaMu, and PNC. Bear in mind that this can vary by state or province.

Banks that are known to charge these fees in some areas include M&T Bank, Citizen's, Wells Fargo, U.S. Bank, Commonwealth Bank (Australia), and Huntington.

When you sign up for a new checking account, ask specifically if there are debit fees. For your existing accounts, keep an eye on your statements and call if you see anything strange.