Financial Information Services

I thought it must be a belated April Fools' joke.

But no, the banks that demanded they be rescued with billions of taxpayer dollars lest the economy be ripped asunder are now extremely busy trying to weasel their way out of the strings attached to the loans. The American Bankers Association sent a letter to the Treasury and the Federal Deposit Insurance Corporation last week protesting the requirements related to returning the money they received from the Capital Purchase Program.

In short, the ABA doesn't want banks who are returning the money earlier than planned to have to pay the 5 percent required interest payment to U.S. taxpayers. The letter states: "For a short-term investment, this amounts to an onerous exit fee, not a proper return on investment."

An onerous exit fee? How hilarious is this, when you consider that the banks practically invented onerous fees? Let's consider just a few:

Overdraft fees: Three-quarters of banks automatically enroll consumers in their "overdraft protection" programs without formal permission, and then charge an average of $27 for an overdraft, according to a 2008 study by the FDIC. Around 80 percent of those overdrafts took place at ATMs and point-of-sale machines (when using a debit card). Banks have the technology to tell consumers they are in danger of overdrafting the account before a debit purchase, so consumers have the opportunity to cancel the transaction and avoid the fee. But just 8 percent of banks do so, according to the FDIC, while 89 percent of banks tell consumers after the fact. Meanwhile, more than half of large banks manipulate the order in which they clear checks to trigger multiple overdraft charges (see this story on how it's done).

ATM Fees: According to a survey by Bankrate, 99.2 percent of bank ATMs charge a fee to non-account holders who use the facility. The average fee in 2008 was $1.97, 11 percent higher than the previous year. In some locations, Bank of America, JP Morgan Chase, and Wachovia charge $3 for using their ATMs.

Legal Processing Fees: Banks that illegally garnish the social security deposits of senior citizens and the disabled charge them a $100+ fee for the privilege.

And then, of course, there are credit card fees and their attendant deceptive practices. That was the topic of a meeting today between President Obama and executives of the nation's largest credit card companies. In 2007, lenders collected a record $18 billion in credit card penalty fees, up nearly 70 percent from four years earlier, according to the investment banking firm R.K. Hammer. The average late fee on credit card payments rose to $35 by the end of 2007, according to Cardweb.com, and the over-the-limit fees rose to nearly $27. Consumers who consistently pay on time have been socked with soaring interest rates.

The ABA letter is preposterous, and just a small indication of how out of touch the banking industry is with American consumers. In fact, the top 10 recipients of the $700 billion taxpayer bailout actually spent $9.5 million lobbying the federal government in the first three months of this year, the Associate Press reports. AIG, Citigroup, and JP Morgan Chase each spent more than $1 million in 90 days to influence the government; General Motors spent $2.8 million.

The banks not only want to get out of fees associated with paying back TARP funds, they are also lobbying to change the terms on the taxpayer money they still hold in their vaults, according to the Wall Street Journal. In exchange for the TARP money, the banks gave taxpayers warrants that allow the government to buy common stock up to 10 years down the road. The warrants are worthless at the moment, but because the government has a 10-year period to exercise them, taxpayers have the chance at a decent return (or at least the opportunity to break even) when the banks recover. The banks are lobbying to return the TARP money and eliminate the warrants, by either buying them back or having the government sell them to private investors.

And yet taxpayers are already being shortchanged. The Congressional Oversight Panel  on the TARP funds was told back in December by former Treasury Secretary Henry Paulson that taxpayer infusions were made "at or near par" -- in other words, taxpayers were receiving $1 for every $1 invested in the troubled banks. But an independent analysis conducted for the Oversight Panel found taxpayers received 66 cents for every $1 invested -- for a loss of at least $78 billion.

Stay Out of Debt 

Every time I write about banks taking advantage of people, readers are quick to point out that these fees are easy to avoid if someone pays attention and is responsible. I agree. In fact, I strongly agree. We recently decided to pay off our only outstanding debt -- a 30-year mortgage at a low fixed rate -- as early as possible. I have always thought of debt as a tool that one can use intelligently, especially long-term, fixed-rate debt. But combine the risks of job loss or illness with an industry that is intent on tightening its grip around the necks of consumers who owe money, and debt becomes a tool over which you can quickly lose control.

And lobbying dollars, campaign contributions, and regulatory agencies loaded with former bankers do not bode well for consumer protection over the long term -- despite sternly worded presidential warnings, legislation, or new regulations.

Bottom line: Owe nothing to anyone. It's not just the way to win in this economy and the years ahead -- it may be the only way to survive.