Banks Sock Small Businesses With Fatter Fees

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Increasingly, banks battling red ink are turning to small businesses to raise some much-needed cash. Call it good business or call it legal extortion, but the small business-bank relationship is changing fast, thanks to new rules on bank insurance fees.

The genesis for all of this change is the Federal Deposit Insurance Corp., the quasi-government agency whose charter is to protect bank consumers' assets. Banks guarantee deposits up to $250,000 per account — even if a bank goes under. With 106 U.S. bank failures this year, according to the FDIC, the amount of money the agency has on hand to insure bank depositors becomes depleted.

Just how depleted? The FDIC reports that its dwindling cash reveres have hit the lowest point since 1992, at the heart of the savings and loan scandal. At the end of the second quarter of 2009, FDIC cash reserves stood at $10.4 billion — down from $45 billion at the same period in 2008.

To restore its cash reserves, the FDIC is asking banks to speed up its insurance fees owed to the agency — up to $45 billion all together in a stinging, one-time fee that could dent the profit margins of thousands of U.S banks. But when banks are hit with unexpected fees (how ironic is that?), it triggers a domino effect where banks begin to look around for other sources of revenue to make up the difference.

That’s where small businesses enter the scene. Banks can ding small businesses in a lot of ways, and the fees really add up. For example, businesses tend to deposit a lot of checks every month — and banks are increasingly targeting such transactions with added fees.

Bank wire transactions are another fee haven for banks. Small businesses that send and receive money via bank wire can expect fees of up to $40 these days. While fees vary from bank to bank, individuals who conduct wire transfers pay around $15 for each transaction.

Other areas where banks can slap onerous fees on small business owners include merchant card accounts, sweep accounts, payroll services and checking accounts.

What recourse do small business owners have? For starters, threaten to take a walk if you see your bank hiking its fees. Smaller, community banks usually have more flexible rules on fees, and are more willing to pull them to earn your business.

Also, talk to other business owners and see what they’re doing to handle higher bank fees — they may have a better deal at their banks. Also, talk to your bank representative. Small firms are a cash cow for banks, and they don’t want to lose your business. Sometimes all it takes is a face-to-face to straighten out a fee issue.

By and large, you don’t have to take fee abuse lying down. Just know that banks are scrounging around for every nickel they can these days, and your small business is an appealing target. Stand firm, balk at any fee hikes and be ready to walk if necessary.

If you do that, chances are that banks will move on, and take their chances with a business owner who won’t raise hell over higher fees.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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