The Wall Street Journal
The nation's banks will be bombarding customers with new fees and products in 2010 as they try to replace more than $50 billion in revenue wiped out by new rules that clamp down on certain business practices.
So far, the changes are mostly concentrated in checking accounts and credit cards. In addition to attaching new fees to old products, banks are introducing new types of accounts that they hope will reel in new customers and reduce their funding costs.
For plastic, the new rules go into effect in February as part of the Credit Card Act of 2009. The rules will limit some interest-rate increases, require more disclosure to customers and prohibit banks from raising interest rates on current balances unless a customer is at least 60 days behind in a payment.
Credit-card issuers collected $22.9 billion in penalty fees—such as those assessed for late payments—in 2009, up from $19 billion in 2008, said Robert Hammer, who runs a credit-card consulting firm in Thousand Oaks, Calif.
Credit-card companies already have been racing to slip new fees and practices into customer contracts ahead of the law. Issuers are closing accounts, switching cards with fixed interest rates to variable rates and introducing cards that have an annual fee.
Christopher Moss, who regularly shops at sporting-goods chain Gander Mountain, recently was notified that he will be charged a $1 "processing fee" each time he receives a printed statement of his Gander credit-card account rather than an electronic one. The 50-year-old paralegal said he is prepared to cut up the credit card even though he likes the loyalty rewards that come with it.
"It's not like I can't afford it, but it's another little stick in the consumer's eye," Mr. Moss said.
The Gander Mountain card is issued by World Financial Network National Bank, a unit of Alliance Data Systems Corp., of Dallas. The company, which also issues credit cards for women's clothing chain Ann Taylor Stores and lingerie maker Victoria's Secret, says that the decision to charge the fee is partly tied to the costs that it will incur from the new rules.
"One requirement of the Credit Card Act of 2009 is that monthly billing statements will now have to include significantly more information pertaining to the cardholder's terms and conditions, thus increasing the amount of paper, production and postal expenses as well as having a greater environmental impact," the company said in a written statement.
Issuers also are likely to water down rewards programs and introduce fees for inactive accounts. "There are so many things that issuers can do that the Card Act doesn't touch," said Bill Hardekopf, chief executive officer of LowCards.com, a Web site that tracks the industry.
In addition to the credit-card rules, the government will crack down next year on ways banks charge overdraft fees, which are assessed when a customer overdraws an account.
New Federal Reserve rules will require banks to receive customer consent before they can be charged such a fee. That is a significant change from the current practice, in which banks typically honor withdrawals and then levy a fee if the account is overdrawn. The Fed estimates that banks generate $25 billion to $38 billion a year in overdraft fees.
The changes come against a backdrop of rising anger at the nation's banks—having been largely supported by hundreds of billions of public bailout dollars in late 2008 and 2009. One recent survey by Chicago's Bank Administration Institute found that 43% of retail-bank executives feel that consumer trust in banks has eroded in the past six months.
To make up for lost overdraft revenue, banks are promoting greater use of debit cards, which can be more profitable for banks than processing paper checks, and new types of checking accounts.
BBVA Compass, a regional bank with 748 branches, is promoting a checking account that it introduced three years ago as a way to generate revenue and attract new customers. Called "Build to Order," customers customize their accounts from a menu of options such as receiving interest on checking, no minimum-balance requirements or free usage of another bank's automated teller machines. The first two selections are free; customers then pay $2 a month for each additional feature they choose.
The bank is conducting research to determine if customers would be willing to pay more for heftier rewards programs, and real-time alerts for fraud or low balances, said Rick Claypool, director of BBVA Compass's consumer deposit products.
Other banks are expected to eliminate free checking completely, raise fees on safe-deposit boxes and charge customers more for issuing a stop-payment on a check.
"There may be some areas of opportunity that banks really haven't focused on because they had the engine of overdraft fees," said Chris Gill, who specializes in the community-banking industry at SNL Financial in Charlottesville, Va.
Alan Friesen, a consultant at marketing firm Haberfeld Associates in Lincoln, Neb., said such a strategy can backfire with customers. He is urging his community-bank clients to retain free checking and other services in order to differentiate themselves from big banks that are likely to increase fees.
Indeed, TCF Financial Corp., a Wayzata, Minn., bank that uses a "totally free checking" slogan, is re-thinking a plan to start charging a monthly fee on accounts that don't meet minimum balances.
The bank, which has 443 branches and $17.7 billion in assets, is putting plans for the new account on hold while it instead concentrates on getting its 700,000 checking-account customers to opt in to its overdraft program.
"We still think it's a good idea, but we are in a wait-and-see mode," said Jason Korstange, a TCF spokesman.
So far, the changes are mostly concentrated in checking accounts and credit cards. In addition to attaching new fees to old products, banks are introducing new types of accounts that they hope will reel in new customers and reduce their funding costs.
For plastic, the new rules go into effect in February as part of the Credit Card Act of 2009. The rules will limit some interest-rate increases, require more disclosure to customers and prohibit banks from raising interest rates on current balances unless a customer is at least 60 days behind in a payment.
Credit-card issuers collected $22.9 billion in penalty fees—such as those assessed for late payments—in 2009, up from $19 billion in 2008, said Robert Hammer, who runs a credit-card consulting firm in Thousand Oaks, Calif.
Credit-card companies already have been racing to slip new fees and practices into customer contracts ahead of the law. Issuers are closing accounts, switching cards with fixed interest rates to variable rates and introducing cards that have an annual fee.
Christopher Moss, who regularly shops at sporting-goods chain Gander Mountain, recently was notified that he will be charged a $1 "processing fee" each time he receives a printed statement of his Gander credit-card account rather than an electronic one. The 50-year-old paralegal said he is prepared to cut up the credit card even though he likes the loyalty rewards that come with it.
"It's not like I can't afford it, but it's another little stick in the consumer's eye," Mr. Moss said.
The Gander Mountain card is issued by World Financial Network National Bank, a unit of Alliance Data Systems Corp., of Dallas. The company, which also issues credit cards for women's clothing chain Ann Taylor Stores and lingerie maker Victoria's Secret, says that the decision to charge the fee is partly tied to the costs that it will incur from the new rules.
"One requirement of the Credit Card Act of 2009 is that monthly billing statements will now have to include significantly more information pertaining to the cardholder's terms and conditions, thus increasing the amount of paper, production and postal expenses as well as having a greater environmental impact," the company said in a written statement.
Issuers also are likely to water down rewards programs and introduce fees for inactive accounts. "There are so many things that issuers can do that the Card Act doesn't touch," said Bill Hardekopf, chief executive officer of LowCards.com, a Web site that tracks the industry.
In addition to the credit-card rules, the government will crack down next year on ways banks charge overdraft fees, which are assessed when a customer overdraws an account.
New Federal Reserve rules will require banks to receive customer consent before they can be charged such a fee. That is a significant change from the current practice, in which banks typically honor withdrawals and then levy a fee if the account is overdrawn. The Fed estimates that banks generate $25 billion to $38 billion a year in overdraft fees.
The changes come against a backdrop of rising anger at the nation's banks—having been largely supported by hundreds of billions of public bailout dollars in late 2008 and 2009. One recent survey by Chicago's Bank Administration Institute found that 43% of retail-bank executives feel that consumer trust in banks has eroded in the past six months.
To make up for lost overdraft revenue, banks are promoting greater use of debit cards, which can be more profitable for banks than processing paper checks, and new types of checking accounts.
BBVA Compass, a regional bank with 748 branches, is promoting a checking account that it introduced three years ago as a way to generate revenue and attract new customers. Called "Build to Order," customers customize their accounts from a menu of options such as receiving interest on checking, no minimum-balance requirements or free usage of another bank's automated teller machines. The first two selections are free; customers then pay $2 a month for each additional feature they choose.
The bank is conducting research to determine if customers would be willing to pay more for heftier rewards programs, and real-time alerts for fraud or low balances, said Rick Claypool, director of BBVA Compass's consumer deposit products.
Other banks are expected to eliminate free checking completely, raise fees on safe-deposit boxes and charge customers more for issuing a stop-payment on a check.
"There may be some areas of opportunity that banks really haven't focused on because they had the engine of overdraft fees," said Chris Gill, who specializes in the community-banking industry at SNL Financial in Charlottesville, Va.
Alan Friesen, a consultant at marketing firm Haberfeld Associates in Lincoln, Neb., said such a strategy can backfire with customers. He is urging his community-bank clients to retain free checking and other services in order to differentiate themselves from big banks that are likely to increase fees.
Indeed, TCF Financial Corp., a Wayzata, Minn., bank that uses a "totally free checking" slogan, is re-thinking a plan to start charging a monthly fee on accounts that don't meet minimum balances.
The bank, which has 443 branches and $17.7 billion in assets, is putting plans for the new account on hold while it instead concentrates on getting its 700,000 checking-account customers to opt in to its overdraft program.
"We still think it's a good idea, but we are in a wait-and-see mode," said Jason Korstange, a TCF spokesman.
