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Hefty bank fees waylay soldiers

Banks that market to US military personnel are among the top collectors of fees.

By Money Staff Jan 16, 2014 2:55PM

This post comes from Mark Maremont and Tom McGinty at partner site The Wall Street Journal.

The Wall Street Journal on MSN MoneyFort Hood National Bank lets soldiers overdraw their accounts by hundreds of dollars at its seven branches on the Fort Hood U.S. Army base in Texas. It charges them up to $35 for each overdraft.

Military Man © Stockbyte/SuperStockNot long after Samantha Smith started her customer-service job at the bank in 2010, she noticed she spent most of her time on soldiers struggling with those fees.

The bank disclosed the fees, she says, but many soldiers didn't understand it would charge them $35 repeatedly, even for small debit-card transactions. When their Army paychecks arrived, the bank withheld overdrawn sums and fees, often leaving them short of funds and vulnerable to more overdraft charges, she says.

"They could never catch up. It was awful," says Ms. Smith, who left the bank a year later. "These guys are 18 years old and they never really managed money. The bank knows that."  Fort Hood National officials didn't respond to inquiries.

The overdraft-fee issue among soldiers isn't unique to Fort Hood. "It's the biggest wolf outside the door" financially for many military personnel, says Steve Abbot, a retired admiral who heads the Navy-Marine Corps Relief Society, a nonprofit that helps financially strained personnel.

Civilians also struggle with bank fees. But some banks that market heavily to the military are among America's top collectors of such fees.

A Wall Street Journal analysis of bank filings found that Fort Hood National and three other banks that have on-base branches were among the top 10 U.S. banks in terms of service-charge income as a percentage of deposits in the 12 months ended Sept. 30.

Officials at the U.S. Army, which runs many of the bases at which these banks operate, say they aren't aware of any issues with overdraft fees at those banks or in its wider banking program.

Among the other six banks in the top 10 in the Journal analysis of almost 7,000 banks with more than $5 million in deposits, three have head offices near major military bases and share ownership with at least one of the four on-base banks flagged as having high fees.

The filings don't break out overdraft charges. But federal regulators generally estimate that overdraft fees make up the majority of bank service charges. Moebs Services Inc., a banking research and consulting firm, estimates the figure is close to 75 percent.

Across the U.S., military posts typically have one on-base bank and one on-base credit union, ranging from small local players like Fort Hood National to big institutions such as Bank of America Corp. Each base sets the maximum fees its financial institutions can charge.

The bank with a presence on the most domestic bases is Armed Forces Bank N.A., with branches on 35, according to the Association of Military Banks of America. Bank of America is runner-up, with branches at 12.

Armed Forces Bank, based at Fort Leavenworth, Kan., was among the top 10 banks in the Journal analysis. Its fee income was 5.6 percent of funds on deposit and averaged $234 per account, more than four times the $56 weighted average for all banks in the analysis.

The bank is part of privately held Dickinson Financial Corp. of Kansas City, Mo., which controls four other small banks in the top 10. They include several banks with branches on or near bases and the bank with the highest fee ratio, Phoenix-based Sunbank NA, whose website says it has 14 branches in Wal-Mart stores. Dickinson officials didn't respond to inquiries.

At Fort Hood National Bank, service charges were 6.8 percent of funds on deposit and averaged $328 per account, the Journal analysis found.

Bank of America's fees nationwide were 0.5 percent of deposits and averaged $82 per account. A Bank of America spokeswoman declined to disclose fee data for its on-base banks but says overdrafts have been "greatly reduced" for its customers, including military members, since it stopped allowing overdrafts from debit cards in 2010.

Overdraft programs can help customers avoid bounced-check charges from merchants and hits to credit ratings. But for many chronic users, critics say, overdraft fees are almost indistinguishable from short-term loans with ultra-high interest rates.

In a 2008 report on overdraft fees, the Federal Deposit Insurance Corp. pointed out that a $20 debit-card transaction incurring a $27 overdraft fee repaid in two weeks equates to an annual percentage rate, or APR, of more than 3,500 percent.

The Pentagon considers debts incurred by military members to be a significant morale and readiness issue. Much attention has focused on payday lenders that allegedly prey on military customers with high-cost loans. Congress cracked down with the Military Lending Act, which, starting in 2007, limited to 36 percent the APR interest on many payday-style loans to military members.

Since then, overdraft programs have replaced payday lending as the leading financial problem for many military personnel, says Adm. Abbot of the Navy-Marine relief society. Some financial institutions serving the military have reined in overdraft fees, he says, while others are engaged in "predatory or punitive overdraft practices."

Cpl. Rosalio Montes, a Marine at California's Camp Pendleton, sought help last October at the Navy-Marine society after getting into an overdraft hole. Needing $500 for a family emergency, he used his overdraft privilege to withdraw $500 from his Navy Federal Credit Union account. He expected a $20 fee, which he figured he could pay after his next paycheck.

But after payday, Cpl. Montes found the bank had taken out the $500, plus $60 in overdraft fees. The fee tripled because the ATM limited his withdrawals to $200, requiring him to take the cash in three chunks. He says he was "in too deep" and couldn't support his wife and children.

A spokeswoman for Navy Federal, which has branches near the base and many others in the U.S., says it doesn't comment on individual customers but prides itself on having some of the industry's lowest fees. Credit unions weren't part of the Journal analysis. Navy Federal's filings show its fees were 1 percent of deposits and averaged $44 per account in the same time period.

The Navy-Marine society, which introduced the Journal to Cpl. Montes, provided him with financial aid. The society's Camp Pendleton office typically sees four or five service members a day seeking help for overdraft and similar problems, says Meredith Lozar, the office's director.

The Army says its own emergency-relief offices, which it runs, haven't seen significant overdraft problems. Army officials declined requests to interview relief officials at two large Army installations where the Journal analysis showed banks with high fee income.

A 2011 Army study found average fees at on-base banks, including for a single overdraft, were well below civilian-bank averages.

Eric Reid, director of the U.S. Army Financial Management Command, praises on-base financial institutions as a "bulwark against those outside the gate that are trying to gouge" soldiers. Among the services the Army requires the banks to provide, he says, is free financial-education training.

Mr. Reid says it isn't surprising that military banks are more reliant than civilian ones on fee income, because they do few mortgages or commercial loans. It is reasonable to let banks recover the cost of "special processing," he says, if soldiers get into overdraft problems. "The real heart of the issue" is to provide financial education to soldiers so they avoid trouble, he says.

Amid a fresh Pentagon review of the Military Lending Act, the Center for Responsible Lending and other consumer groups have together argued that overdraft loans at banks serving the military should be subject to the law's 36 percent rate cap. In a letter to Defense Secretary Chuck Hagel in August, the groups said overdrafts "extend credit to service members at abusive rates and terms that mirror payday loans."

The American Bankers Association and five other banking groups opposed those measures, arguing in an August letter to the Pentagon that overdraft loans are among the few options available to those who have trouble managing their finances.

Curtailing certain overdraft practices, they wrote, would "further discourage depository institutions from maintaining an on-base presence" and make service members more susceptible to outside predatory lenders.

A Defense Department spokeswoman says the Pentagon is reviewing the issue and is drafting a "revised rule regarding credit protections" likely to be released in the first quarter of 2014 for public comment.

Since 2010, U.S. banks have been required to get customer assent to charge overdraft fees on debit-card transactions and ATM withdrawals.

Some banks go further. USAA Federal Savings Bank, which doesn't have on-base branches but serves many active-duty military and veterans, doesn't allow overdrafts with debit cards. It limits its $25 overdraft fees to two a day on other types of withdrawals. USAA's fees were 0.3 percent of deposits and an average of $19 per account in the Journal analysis.

Of the top 10 banks in the analysis, nine are controlled by one of three concerns: Dickinson; JRMB II Inc., of Lawton, Okla.; or First Community Bancshares Inc., of Killeen, Texas. The other, Woodforest National Bank, of Woodlands, Texas, is controlled by an employee stock-ownership plan, its filings show. Woodforest, which in 2010 reached a settlement with bank regulators to repay $32 million to consumers allegedly harmed by its overdraft practices, declined to comment.

Fort Sill National Bank, which is based at Oklahoma's Fort Sill Army base and also has branches at five Air Force and Marine bases, is among the top 10 banks. The privately held Lawton, Okla., bank also has dozens of civilian-oriented branches inside Wal-Mart stores.

The bank charges up to seven overdraft fees per customer a day. That is among the highest in the industry, although its overdraft fees are among the lowest, at $19.50 a transaction.

The bank's fees in the 12 months through September totaled $51.6 million, the Journal analysis found, an average of $620 per account and 18% of the funds on deposit. Its per-account service charges were 10 times as high as those at Fort Sill Federal Credit Union, Fort Sill's other on-base financial institution.

Fewer than 15 percent of Fort Sill National Bank's branches are on military bases, says John R. Davis, CEO of the bank and an officer of its parent, JRMB. One reason the bank's fees appear to be high as a percentage of deposits, he says, is that its typical customer has low-to-moderate income and carries a small bank balance.

A "large proportion" of its fees come from overdrafts, but customers incur overdraft charges only if they have signed up for that service, he says. "Our customers choose to bank with us, because many of our fees are lower than our competitors."

As for questions about the bank's high average fees per account, Mr. Davis says many people spend more than that annually on cable TV. "Why don't we tell the soldiers how much they can spend on cable TV?" he says.

Fort Sill National Bank has won the Army's Distinguished Bank Service Award 10 times since 1990, most recently in 2012.

Fort Hood National Bank is a 10-time winner of the same award. The chairman and CEO of the bank's parent, First Community, is listed in Texas records as 82-year-old Jerold B. Katz of Houston, who also runs GC Services LP, a large debt collector. Mr. Katz didn't respond to inquiries.

The bank -- seven of its eight branches are on the Fort Hood base -- offers free checking and charges $19 for the first overdraft in a rolling 12-month period, $29 for the second and $35 for additional ones, in compliance with the fees allowed under its agreement with the base.

Charity Williams, an Army veteran, says she started banking at Fort Hood National in 2009 when she was in the National Guard and not long before her husband was deployed in Iraq.

She says she later lost track of their bank account amid caring for two young children and started getting hit with $35 overdraft fees, including on small debit-card overdrafts. "If you use your debit card and the money's not there, they should cut you off," she says. There were times, she says, "when I was only 50 cents or $1 off, and they charged me $35."

She says she switched most of her banking to another bank. She later joined a putative class-action lawsuit against the Fort Hood bank in U.S. District Court for the Southern District of Texas. The suit was dismissed in November 2013, largely because many claims were too old or subject to arbitration.

Michelle Atkins, a supervisor at the bank until 2010, says overdraft responsibility lies with customers. "They're not responsible enough," she says. "They know when their check is going to hit, and they go and spend it."

Fort Hood National offers a zero-interest "Fresh Start" loan that lets customers pay large overdraft balances over time. In an indication of the volume of overdrafts at the bank, a 2012 bank-regulator report found 22 percent of its consumer-loan portfolio consisted of Fresh Start loans.

More from The Wall Street Journal:

Jan 16, 2014 4:45PM
While I'm all for self responsibility when it comes to people, I also know that it doesn't cost a bank $35 to process a NSF check......I know this becuase I've spent 30 years in banking.  These fees are ALL profit driven.  This is a story becuase it is affecting GIs not becuase of a $35 overdraft fee.  The way to solve this is for the the armed services to have theri own bank charter and make the GIs bank at the "military" bank.  The bank could therefore be non-profit thus eliminating these crazy fees, secondly require financial counseling of ALL GIs so they understand the ramifications of overdrawing their account, not paying their loans etc.  Again, while I am for taking responsibility for one's self, the majority of these knucklehead GIs are 18-25, nevber been away from home, are taught when to eat, where to eat, when to crap and how and are never really taught any life skills.  Take away the profit by having a military only bank and the problem would be solved.
Jan 16, 2014 3:43PM
Bankers, the lesser cousin of the used car salesman.
Jan 16, 2014 3:56PM
Typical banking greed.  Always taking it out on the poor or little guy.  Why not send the bank presidents to Afghanistan to personally collect the fees from the GIs who are serving our nation so the bankers can get even richer. 
Jan 16, 2014 4:38PM
"In a 2008 report on overdraft fees, the Federal Deposit Insurance Corp. pointed out that a $20 debit-card transaction incurring a $27 overdraft fee repaid in two weeks equates to an annual percentage rate, or APR, of more than 3,500 percent."

The crux of the issue is (regardless if it's civilians or people in the armed forces) why does a bank get to charge anyone 3,500% interest for a short-term loan of a few dollars? 

It's predatory and thanks to your moronic politicians, it's legal. 
Jan 16, 2014 4:38PM
"Tucson" -- you are absolutely right, but I doubt most young folks understand overdraft protection either.  I say, no money - do not authorize the transaction.  Period.
Jan 16, 2014 4:12PM
This fee is way to high,banks make billion of dollars on them.I know it is mostly our own fault , the fee should be 10 dollars that seems a lot fairer,since we bailed out a lot of these bank with tax payer money., give us a break for a change.  BYE
Jan 16, 2014 4:14PM
This has all been illegal for years. Is the government giving special privileges to a few, again?
Jan 16, 2014 4:02PM
The worst of the banks is chase by a long shot.  They charge you an overdraft fee and then a daily fee after that.  They also pray upon low credit score people in the auto industry and charge then insain rates.  This is why you should shop around when looking at banks and if you have kids give them advise for which banks not to use.  The banks only do it because it is easy money for them and enough people allow them to do it.
Jan 16, 2014 4:35PM
Go to your bank and have them take the "OVERDRAFT PROTECTION" off your account
Jan 16, 2014 4:53PM
Ignorance is no excuse.  If you can't read, you shouldn't be in the military.  You should run for public office.
Jan 16, 2014 4:35PM

Over draft fees are a cash cow for banks and yes - most young people do not fully understand the implications.  A single $2 change on your debit card can generate a $30 fee. Yes - they will notify you by mail, but, typical of young folks, they may make 5 or more small transactions a day.  by the time the notifications reach them by mail, they have incurred hundreds of dollars in fees.


I know this from personal experience, confronting the bank on my son's behalf.  It seems like a crime to continue to charge fees for every transaction when the person is not aware they are incurring fees.  Banking these days is a cash scheme designed to penalize you for using services.

Jan 16, 2014 4:41PM
My son was in the Navy. This is true. I could not believe how Navy Federal manipulated his account to collect more and higher fees for loans, credit cards, etc. Shameful. Navy Federal is NOT Navy and NOT Federal, just FYI. They are a bank [NOT credit union] like any other and looking to take your money!
Jan 16, 2014 5:00PM
Welcome to American banking - ignoring the fine print can be costly - credit unions may be a better option - don't patronize financial institutions with fees you can't avoid - use only cash - invest in financial institutions, become a shareholder and reap the profits of fees - utilize offshore banking institutions - many, many alternative options to whining about bank fees soldier
Jan 16, 2014 4:01PM

 "If you use your debit card and the money's not there, they should cut you off," she says.

Seriously ?  Can you do basic addition and subtraction ? If the answer is no, you don't need a checking account.

It's the same old sh*t. It's not my fault. I'm special. The rules don't apply to me.

Any other bank would charge fees in the same instance.

However these people are younger and working for a lower rate of pay in a lot of circumstances in the defense of our country. Many have never been away from home before and some truly dont understand money/banks or how they work.

I would suggest they try the local federal credit union as they are more customer focused than most banks which are just there to take your money anyway they can.

Jan 16, 2014 4:59PM
Cell phone companies are doing the same thing because they're cash cows to be bled dry.
Jan 16, 2014 4:30PM
Another example of the 'I'm special, nothing is my fault, all my wants and desires should be taken of by someone else' mentality this country is quickly adopting. Unlike the federal government these people cannot spend money they do not have.  Here is a quick course in fiscal management - In order to avoid overdraft fees, if you do not have money in the bank don't spend it.
Jan 16, 2014 6:49PM
Whatever happened to live within your means, save for a rainy day, and be responsible with your finances?  If you don't understand how overdraft fees work, then you should learn to read the fine print!!  No sympathy here. 
Jan 16, 2014 5:40PM
This false drama is a cheap attempt to exploit the military to sell advertising.  The overdraft fees are commonplace throughout the nation and for all citizens.  $35 per overdraft is pretty standard.  It's not just GIs who run afoul of the system if they don't pay attention.  It is also true that each of the banks/credit unions providing overdraft protection have a very simple opt-out process for their customers.  Perhaps the banking regulators just need to make financial institutions open accounts with that feature deactivated by default and only allow it after a waiting period and affirmative request by the customer.
Jan 16, 2014 6:09PM
I have an idea:  Don't overdraw your account and you won't be charged 35 bucks.
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