Bank Fees


Bank on it: Higher fees, and more of them, are coming soon to a financial institution near you. Banks are gearing up for a wave of new fees in an attempt to make up for lost revenue from new regulatory rules on credit cards and overdraft fees.

Regulators in the past year have pushed through a raft of changes. The new rules are expected to slice billions from firms' profits, and more if lawmakers move forward with a bill to limit how much financial institutions can charge merchants for debit-card transactions.

Banks, of course, aren't giving up those revenues without a fight. Instead, industry leaders like Bank of America Corp., Wells Fargo & Co., HSBC North America, Fifth Third Bancorp and others are experimenting with new fees for their customers, from imposing maintenance fees on checking accounts to rolling out new charges for services like fraud alerts, debit cards and credit reports.

Making matters trickier, while the banks must disclose the new fees fully, they likely will do so only in the ordinary-looking correspondence that most consumers toss in the trash without reading. The result: Many people will learn of the new charges only after opening their monthly statements. "You've got to read those annoying letters that you get because they will be the ones that will tell you what is happening, so you can be prepared to vote with your checkbook and take it somewhere else," says Gail Hillebrand, a senior attorney at Consumers Union in San Francisco.

Consumer advocates worry that the new fees will unfairly burden consumers who keep low balances and manage their accounts responsibly to avoid any penalty fees. "That's the group that will be most penalized in this environment," says Bill Handel, vice president of research and product development at Raddon Financial Group, which advises banks and is a unit of Open Solutions Inc.

Free Checking?


The first and biggest casualty in the new fee assault: free checking. Most consumers haven't paid for a checking account in years; banks have long given away their checking services to establish relationships with customers who might later take out a mortgage, invest in one of their mutual funds or otherwise give them more business. Such free accounts have often included other popular perks, such as free online bill payment, debit-card rewards and free check printing.

Some bank customers already are getting a sense of what is coming. Wells Fargo, one of the nation's largest consumer banks, is eliminating free checking on July 1. Bank of America, is testing new tiered checking accounts that will encourage customers to increase their activity with the bank. While some banks will waive the maintenance fee, their lists of requirements are getting longer. HSBC requires customers to maintain a minimum balance or pay a monthly maintenance fee of $8 to $50 a month, depending on the type of account. Fifth Third Bancorp in Cincinnati, which dropped free checking last fall, now gives customers a handful of ways to avoid a $15 monthly fee, ranging from monthly direct deposit of $100 or more to a combination of services that include debit-card purchases, minimum monthly activity, fraud alerts and online bill payment.

The details may differ, but banks share a common motivation: They "are trying to figure out how to get paid for checking in ways that aren't obvious to the customer," says Kelly Trammell, a managing director at Sheshunoff Consulting & Solutions in Austin that advises banks on technology, strategy and other issues.

Bank Fees


  • $12.55: Average monthly fee for falling below the minimum balance on interest-bearing checking accounts.
• $29.58: Average overdraft fee in 2009, up from $22.62 a decade ago.
• 16%: Average credit-card rate increase in the year since the Card Act was passed in 2009.
• $39: Median fee charged by banks for late credit-card payments.

A Better Deal


One way to get a better deal on checking fees is to do a lot of business with one bank. More than half of all checking accounts are unprofitable to banks, according to a report issued last month by Celent, a unit of Marsh & McLennan Cos. It's no surprise, then, that banks tend to give the best deals to customers with whom they have multiple financial relationships, including mortgages, investments and credit cards.

Local community banks and credit unions are likely to hang onto free checking longer than their bigger rivals. That is because such institutions will see less of a financial impact from some of the new regulations, and therefore may be under less pressure to add fees. Smaller banks often promote themselves as being customer-friendly, with products that are less complicated than those offered by big banks.

One downside to smaller institutions is that they usually don't have extensive ATM or branch networks. That means consumers who travel often could get stuck paying out-of-network fees for cash withdrawals if they use another bank's machines.

Consumers with interest-bearing checking accounts, which typically accompany the higher-fee accounts and carry high minimum-balance requirements, need to be especially vigilant. Those balance requirements can change, and might be disclosed only in fine print. And a customer who dips below the minimum level could wind up losing the interest for that month. Rack up enough months without interest and the extra fees for the account wouldn't pay off.

One weapon at consumers' disposal: their vocal cords. If a customer complains enough, a bank might be willing to waive it or extend the current bank service for a certain period of time. "Call the customer service line and say you don't like the fee," says Ms. Hillebrand of Consumers Union. "Banks are experimenting and pioneering, and if customers aren't vocal about what they don't like, the bank will think that their new plan is working." The squeaky-wheel approach can be especially effective face-to-face in a small-town branch. That's because local bankers sometimes have flexibility in what they can offer their best customers.

Bank executives know they are walking a tightrope when it comes to imposing fees. "Everyone is focused like a laser beam on the question of how to replace the revenue that is either already gone or is under threat, but no one wants to incur a lot of negative publicity," says Michael Poulos, who runs a financial-services practice at Oliver Wyman.

Source: Robin Sidel via wsj.com

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