According to recent analysis done by the Wall Street Journal, of the 10 U.S. banks with the highest fees (as a percentage of deposits), four have branches located on the grounds of military bases, while three others have head offices near military bases and are owned by the same company that operates at least one of the on-base banking operations.
There is Armed Forces Bank N.A., which has branches on 35 military bases, the most of any single bank.
The Fort Leavenworth, KS, based Armed Forces Bank averages fees of $234 per account, more than four times the $56 weighted average for all the 7,000 banks included in the Journal’s analysis. Meanwhile, fees were 5.6% of the funds on deposit at the bank, compared with the industry average of only 0.4%.
By comparison, Bank of America has the second-largest number of on-base branches with 12. However, BofA’s fees were only 0.5% of deposits and fees per account averaged $82.
Armed Forces Bank N.A.’s parent company is Dickinson Financial Corp., which owns six of the 10 banks with the highest percentage of fees, including another on-base bank, Armed Forces Bank of California, where the average fees per account is $320 and fees are 10.3% of deposits.
Another on-base bank with huge fees is Fort Hood National Bank, where fees make up 6.8% of funds on deposit and average $328 per account.
And that’s not even the highest among banks with on-base locations. Oklahoma-based Fort Sill National Bank has the second-highest level of fees of all the banks in the analysis (18% of funds on deposit) and by far the highest per-account average — $620, more than 11 times the national average.
Fort Sill does have relatively low per-transaction overdraft fees ($19.50), but it does allow up to seven overdraft fees per customer a day.
The Military Lending Act sets caps on short-term loans made to servicemembers, effectively outlawing payday lenders from issuing loans to members of the armed forces (though some lenders are doing their best to get around these rules). But some cash-strapped servicemembers are turning to overdraft lines of credit at their banks as a way to continue making purchases when they don’t have the necessary funds.
However, these fees can snowball — with banks charging overdraft fees not just when customers dip into that line of credit, but for each transaction, regardless of dollar amount. So if someone buys three $3 lunches while waiting for his next paycheck, each $3 transaction can come with a fee of around $35 or more.
“They could never catch up. It was awful,” says a former employee of Fort Hood National who watched firsthand as young inexperienced servicemembers were repeatedly hit with fees they didn’t understand. “These guys are 18 years old and they never really managed money. The bank knows that.”
For example, there’s the Marine Corporal who needed $500 cash for a family emergency. His understanding of his overdraft policy was that it was $20. What he didn’t know was that it was $20 per transaction. Since his account limits ATM withdrawals to $200, he needed to make three separate withdrawals. Thus, his $500 cost him $60.
The nonprofit Navy-Marine Corps Relief Society says it counsels several soldiers every day on overdraft issues. “It’s the biggest wolf outside the door,” says the retired admiral who runs the Society.
The Army points to a 2011 study that found on-base banks actually have lower fees than other banks, which may be true when you factor in every single small regional bank that operates on a base in this country. But what about these ones that are charging the highest fees in the nation?
A rep for the Army tells the Journal that these banks may have higher fee structures because, unlike the Bank of Americas of the world, these institutions are not able to make up that money elsewhere via mortgages or commercial loans.
The Center for Responsible Lending and others have asked lawmakers and regulators to require that overdrafts be held to the same 36% interest rate cap set on loans by the Military Lending Act. A rep for the Defense Department tells the Journal that a “revised rule regarding credit protections” is forthcoming.
One of the biggest names in military banking, USAA, doesn’t have on-base branches. It also doesn’t allow debit card overdrafts and caps overdraft fees at $50 per day (a maximum of two $25 fees). USAA’s fees below the national average (0.3% of deposits and a per-account average of $19).