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Why consumers pay when Washington cracks down on bank fees

June 12, 2013: 12:08 PM ET

For every new rule aimed at curbing bank fees, another added cost for consumers will surely follow.

bank-fees-on-the-rise-monsterFORTUNE – By solving one problem, U.S. financial regulators may have unknowingly created others they may need to tackle.

On Tuesday, a government agency tapped to be the voice of consumers criticized U.S. banks for a range of practices, from confusing rules on overdraft fees to a plethora of other bank fees. "We are concerned that some overdraft practices may increase consumer costs beyond reasonable expectations," said Richard Cordray, director of the Consumer Financial Protection Bureau, which was created in 2010 under the Dodd-Frank financial overhaul law.

As much as we'd all like to avoid these pesky fees, more rules limiting them could unintentionally create bigger problems for customers. When one consumer banking issue is solved with new regulations, another seems to creep up right behind it. There's no reason to believe it will be any different this time.

The CFPB's move highlights Wall Street's thirst for profits in a post-Dodd-Frank world. And it underscores the complexities of policymaking and financial reform. Recall less than two years ago when the nation's biggest banks planned to charge customers debit card fees. Bank of America (BAC), for instance, wanted customers to pay a $5 monthly fee to use their debit cards for purchases. Customers went livid.

MORE: The Fed's other trillion-dollar problem

All this reflected efforts to raise revenue lost elsewhere -- namely, from the Durbin Amendment, a provision of the Dodd-Frank law that limited fees that banks can levy on merchants every time a consumer swipes a debit card to buy something. It has been estimated that banks could lose $6.6 billion in revenue a year from that regulation. Executives also are looking to make up revenues lost from another relatively new rule restricting overdraft fees. Bank of America, for instance, generated $1.07 billion in interchange fees during the last three months of 2012, down from $1.54 billion during the same quarter in 2010, according to SNL Financial.

In the end, Bank of America backed away from the debit card fees. Not in response to anything the government did or didn't do, but rather to the outpouring of customer complaints online and at bank branches. The nation's second-largest bank pulled out after other competitors -- namely, J.P. Morgan Chase (JPM) and Wells Fargo (WFC) -- dumped similar charges. "We have listened to our customers very closely over the last few weeks and recognize their concern with our proposed debit usage fee," David Darnell, co-chief operating officer at Bank of America, said at the time.

True as that may be, it wasn't exactly a victory for customers. Analysts have warned banks would surely still levy more fees; albeit, less visible ones.

And that's where we are today. The CFPB may want to take a closer look at bank fees, but the effort may be a self-defeating quest. The more regulators try to crack down, the more it gives banks an incentive to hide additional costs for customers. That's where customers could end up losing.

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About This Author
Nin-Hai Tseng
Nin-Hai Tseng
Writer, Fortune

Nin-Hai Tseng covers economics and finance. Before joining Fortune, Tseng was a reporter at The Orlando Sentinel and a public affairs associate at GE. She holds an MPA from Columbia University and a BS in Journalism from the University of Florida. She lives in New York City.

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