The Wall Street Journal
Bank on it: Higher fees, and more of them, are coming soon to a financial institution near you.
Regulators in the past year have pushed through a raft of changes designed to rein in banks' most abusive practices, from excessive overdraft fees to the way lenders raise interest rates when a credit-card payment is late. 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 Holdings PLC's HSBC North America, Fifth Third Bancorp and others are experimenting with new ways to nick 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 messages 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 whack 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.
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—and valuable—perks, such as free online bill payment, debit-card rewards and free check printing.
But, "that is going to change in the next six to 12 months, and there may be some surprises," says Greg McBride, a senior financial analyst at Bankrate.com.
Banking executives and analysts say the new world of checking is likely to resemble the cable-television industry, where customers pay one amount for bare-bones service and then can load on additional options, such as cash-back programs.
Some bank customers already are getting a sense of what is coming. In recent weeks, HSBC North America has told customers that it is converting their free checking accounts to ones that carry a monthly maintenance fee of up to $15.
Wells Fargo, one of the nation's largest consumer banks, is eliminating free checking on July 1. Bank of America, the largest U.S. bank as measured by assets, is testing new tiered checking accounts that will encourage customers to increase their activity with the bank. TCF Financial Corp., a Wayzata, Minn.-based bank that built its reputation on the slogan "totally free checking" for 24 years, began charging its customers earlier this year.
Some banks that once waived monthly maintenance fees on checking accounts for people who carried big balances no longer do so or are raising the balance limits. The fees, which run as high as $15, are likely to rise, too.
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.
An HSBC spokesman said that most of the bank's customers will avoid paying maintenance fees as long as they continue to comply with the terms. HSBC also is waiving fees for six months for customers who are being moved out of free checking accounts.
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 five other activities that include debit-card purchases and online bill payment.
A Fifth Third spokeswoman says the bank has introduced multiple accounts to meet the different needs of its customers, and that the company's bankers work with those customers to help determine the most appropriate account for them.
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, an Austin, Texas-based company that advises banks on technology, strategy and other issues. Mr. Trammell says one of his clients is testing an account that would include a $25 monthly maintenance fee for a large number of services. He declined to identify the bank.
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.
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. One of Wells Fargo's accounts, for example, waives a $15 monthly maintenance fee if the customer has a mortgage with the bank.
Consumers thinking of taking out mortgage or auto or credit-card loans would do well to see what their bank has to offer. But they also should shop around. A customer who has all of his banking services tied up with one institution might be missing good deals on other products from rival banks.
"If you want the convenience of everything under one roof, it may help reduce the cost of your checking account, but that doesn't mean it will be your lowest-cost banking option," says Bankrate.com's Mr. McBride. He notes that some of the country's largest banks typically pay low interest rates on savings and certificates of deposit.
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. Such fees can add up quickly.
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.
Banks are also providing a slew of other options—sometimes at a cost. One of Fifth Third's checking accounts, for example, includes a $3.95 monthly debit-card fee unless a customer rings up $1,500 worth of activity on the card. The same account offers fraud alerts for $5.95.
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 is 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. Many of them remember how First Chicago NBD Corp. received negative publicity in 1995 when it started charging customers who went to the teller line instead of using an ATM.
"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 be the 2010 version of First Chicago," says Michael Poulos, who runs the financial-services practice at consulting firm Oliver Wyman, a unit of Marsh & McLennan Cos.
Now that TCF has eliminated its free-checking account, David Ecale is required to keep a balance of $500 if he wants to avoid a $15 monthly fee. Mr. Ecale, a real-estate agent who has been a customer of the bank since 1981, isn't happy, but sympathizes with the bank's decision.
"It's frustrating," he says. "I hate to say this, but the bank has to cover its costs."
His checking balance on Thursday afternoon: $500.10.
Regulators in the past year have pushed through a raft of changes designed to rein in banks' most abusive practices, from excessive overdraft fees to the way lenders raise interest rates when a credit-card payment is late. 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 Holdings PLC's HSBC North America, Fifth Third Bancorp and others are experimenting with new ways to nick 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 messages 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 whack 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.
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—and valuable—perks, such as free online bill payment, debit-card rewards and free check printing.
But, "that is going to change in the next six to 12 months, and there may be some surprises," says Greg McBride, a senior financial analyst at Bankrate.com.
Banking executives and analysts say the new world of checking is likely to resemble the cable-television industry, where customers pay one amount for bare-bones service and then can load on additional options, such as cash-back programs.
Some bank customers already are getting a sense of what is coming. In recent weeks, HSBC North America has told customers that it is converting their free checking accounts to ones that carry a monthly maintenance fee of up to $15.
Wells Fargo, one of the nation's largest consumer banks, is eliminating free checking on July 1. Bank of America, the largest U.S. bank as measured by assets, is testing new tiered checking accounts that will encourage customers to increase their activity with the bank. TCF Financial Corp., a Wayzata, Minn.-based bank that built its reputation on the slogan "totally free checking" for 24 years, began charging its customers earlier this year.
Some banks that once waived monthly maintenance fees on checking accounts for people who carried big balances no longer do so or are raising the balance limits. The fees, which run as high as $15, are likely to rise, too.
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.
An HSBC spokesman said that most of the bank's customers will avoid paying maintenance fees as long as they continue to comply with the terms. HSBC also is waiving fees for six months for customers who are being moved out of free checking accounts.
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 five other activities that include debit-card purchases and online bill payment.
A Fifth Third spokeswoman says the bank has introduced multiple accounts to meet the different needs of its customers, and that the company's bankers work with those customers to help determine the most appropriate account for them.
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, an Austin, Texas-based company that advises banks on technology, strategy and other issues. Mr. Trammell says one of his clients is testing an account that would include a $25 monthly maintenance fee for a large number of services. He declined to identify the bank.
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. One of Wells Fargo's accounts, for example, waives a $15 monthly maintenance fee if the customer has a mortgage with the bank.
Consumers thinking of taking out mortgage or auto or credit-card loans would do well to see what their bank has to offer. But they also should shop around. A customer who has all of his banking services tied up with one institution might be missing good deals on other products from rival banks.
"If you want the convenience of everything under one roof, it may help reduce the cost of your checking account, but that doesn't mean it will be your lowest-cost banking option," says Bankrate.com's Mr. McBride. He notes that some of the country's largest banks typically pay low interest rates on savings and certificates of deposit.
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. Such fees can add up quickly.
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.
Banks are also providing a slew of other options—sometimes at a cost. One of Fifth Third's checking accounts, for example, includes a $3.95 monthly debit-card fee unless a customer rings up $1,500 worth of activity on the card. The same account offers fraud alerts for $5.95.
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 is 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. Many of them remember how First Chicago NBD Corp. received negative publicity in 1995 when it started charging customers who went to the teller line instead of using an ATM.
"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 be the 2010 version of First Chicago," says Michael Poulos, who runs the financial-services practice at consulting firm Oliver Wyman, a unit of Marsh & McLennan Cos.
Now that TCF has eliminated its free-checking account, David Ecale is required to keep a balance of $500 if he wants to avoid a $15 monthly fee. Mr. Ecale, a real-estate agent who has been a customer of the bank since 1981, isn't happy, but sympathizes with the bank's decision.
"It's frustrating," he says. "I hate to say this, but the bank has to cover its costs."
His checking balance on Thursday afternoon: $500.10.
