10 things your bank won't tell you

By SmartMoney

1. "Our branches are there to sell you, not serve you."

In the late 1990s, bank branches were considered outmoded relics soon to be replaced by ATMs and Internet banking. But just the opposite happened. In 1998, there were 89,000 bank branches in the U.S., and by 2007, there were 97,000.

Why? The industry realized that consumer banking is profitable and that despite the predictions of Silicon Valley wonks, the main criterion consumers use in choosing a bank is proximity, SNL Financial analyst Jennifer Payne says.

But branches aren't just about convenience; they're a bank's primary sales floor. Brochures for services as varied as retirement accounts and home loans are on display, and everyone from the teller on up is trained to make a sale. That's because in the current low-interest-rate climate, it's harder to generate revenue from interest alone.

Many players in the industry have been trying to boost fee- and service-based income, so if a teller sees you have a mortgage, he might suggest you meet with a loan officer to discuss a home-equity loan. Greg McBride, a senior financial analyst at Bankrate.com, says, "The more products a customer has with a bank, the more likely he is to stay with that bank."

2. "Our fees will only go up."

With the economy in a slump and big losses crippling in the mortgage market, banks are looking for reliable revenue streams. Hence punitive fees -- for overdrawing your account, say, or using a competitor's ATM -- are increasing. The average ATM service charge doubled between 1998 and 2007, and overdraft fees brought in $17.5 billion in revenue in 2006, up from $10.3 billion in 2004, according to the Center for Responsible Lending.

Rubecca Hegarty, a married mother of three in Woodridge, Ill., says she often pays upward of $100 a month in overdraft fees to JPMorgan Chase because, like most banks, it changes the order of purchases so that large debts get paid first, increasing the likelihood that customers will incur fees on smaller purchases. Chase says it does this because big payments like a mortgage are more important to consumers and so get priority.

Revenue from penalties can be addictive for banks, Harvard Business School professor Gail McGovern says, but "they're going to face problems from angry customers, which leads to big call-center bills, employee dissatisfaction and turnover."

Indeed, that anger has reached the ear of federal lawmakers. Starting in July 2010, sweeping consumer protections will rein in many of the banking industry's most controversial practices.

3. "We change our interest rates all the time."

Regardless of what your credit card agreement says, you can never be sure how much interest banks will charge you. For example, nearly all cards have a default rate -- as high as 30% -- which banks apply when you've done something wrong, usually after two late payments in 12 months. But some banks have cut that to one late payment, says Curtis Arnold, the founder of CardRatings.com.

Banks can also change the terms of your agreement, raising rates when they like (though you can opt out and pay off the balance at the old rate as long as you never use the card again). Bank of America did that recently, upping many cardholders' rates from 10% or 12% to 27% or more, even though they'd done nothing wrong.

"There's no clarity on what criteria can lead a bank to raise interest rates," says Robert Manning, the director of the Center for Consumer Financial Services at the Rochester Institute of Technology. "It's a black box."

A Bank of America representative says the company periodically reviews the credit risk of its accounts and adjusts rates accordingly, adding that in the past year 94% have had no increase.

4. "College campuses are gold mines for us."

Students are the customers of the future, and banks are increasingly courting them, often right on campus. More than 120 universities have cut deals with banks to issue student ID cards that are also ATM and check cards. Schools can make millions from these deals, sometimes even taking a small cut of individual purchases.

Students are also a hot market for credit card issuers, and banks will make private deals with alumni associations to get contact information for students, parents and even people buying tickets to university athletic events. Card companies cut deals to set up booths on campus.

Continued: The problem?

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