"End Seen to Free Checking
Bank of America Corp. and other banks are preparing new fees on basic banking services as they try to replace revenue lost to regulatory rules, in a push that is expected to spell an end to free checking accounts for many Americans.
Free checking accounts, which have been widely available for more than a decade, have been a boon to middle-class consumers and attracted low-income customers to the banking system for the first time.
Customers will likely be required to pay new monthly maintenance fees on the most basic accounts that don't generate a lot of activity. To avoid a fee, customers will have to maintain certain account balances or frequently use other banking services, such as credit and debit cards, automated teller machines and online accounts.
"If you put $1,000 in a checking account and don't do anything with it, it will be hard to get that for free," says Sherief Meleis, a managing director at Novantas LLC, a consulting firm that advises banks.
Bloomberg News
James Velazquez uses a Bank of America ATM in Charlotte, N.C.
Service Charges as a Percentage of Overall Core Revenue
For the 30 banks with the highest percentage, as ranked by Sandler O'Neill + Partners
Bank Percentage
City Holding Co. 28%
TCF Financial Corp. 26%
Regions Financial Corp. 18%
Capital City Bank Group Inc. 17%
Webster Financial Corp. 15%
North Valley Bancorp 15%
Community Trust Bancorp Inc. 15%
F.N.B. Corp. 15%
M&T Bank Corp. 14%
Old National Bancorp 14%
Renasant Corp. 14%
Prosperity Bancshares Inc. 14%
TriCo Bancshares 13%
StellarOne Corp. 13%
Glacier Bancorp Inc. 13%
Bank of America Corp. 12%
Farmers Capital Bank Corp. 12%
Hancock Holding Co. 12%
Huntington Bancshares Inc. 12%
United Bankshares Inc. 12%
FirstMerit Corp. 12%
Home BancShares Inc. 11%
Associated Banc-Corp. 11%
Wilshire Bancorp Inc. 11%
Great Southern Bancorp Inc. 11%
SunTrust Banks Inc. 11%
SCBT Financial Corp. 11%
United Community Banks Inc. 11%
Trustmark Corp. 11%
Comerica Inc. 11%
Note: Overall core revenue excludes securities gains and losses.
Source: Sandler O'Neill + Partners
Some consumer advocates warn the new fees will whack consumers who now manage their bank accounts to avoid such charges. "Just because you made a lot of money on overdraft fees doesn't mean you deserve the income and doesn't mean you need the income," said Ed Mierzwinski, director of the consumer program for the U.S. Public Interest Research Group, a liberal lobbying group, in Washington.
The transformation of checking accounts comes at a time when banks are bouncing back from the steepest financial losses in a generation and are facing new regulations. To accelerate that recovery and recoup losses from new banking rules, financial institutions are increasingly leaning on customers who don't now generate enough revenue for the bank.
More than half of all checking accounts are currently unprofitable, according to a report issued last month by Celent, a unit of Marsh & McLennan Cos. It costs most banks between $250 and $300 a year to maintain one of the roughly 200 million checking accounts, according to industry estimates.
The situation is especially critical for Charlotte, N.C.-based Bank of America, which stands to lose more revenue than most other big banks because it is in the process of dismantling its checking-overdraft program in the face of new restrictions. Starting this summer, banks must receive customer permission before they can charge for overdrafts. But Bank of America has decided to drop most of its program altogether. The nation's largest bank, as measured by assets, said largely because of recent changes to its overdraft policy, it will forgo $600 million in revenue this year.
To generate new revenue, Bank of America is quietly testing new pricing models throughout the U.S., with most changes expected in early 2011. Executives have ruled out a flat monthly fee for all customers and are developing a tiered structure that encourages customers to increase banking activity or use other services to avoid future charges.
Bank of America customers who only want a low-volume checking account will likely be asked to pay for it. Fees will likely be waived for customers who keep their balances high, use bank credit cards or tap its investment advisers. Bank executives declined to discuss specifics of the plan saying it is still being formulated.
"Customers will have a choice," Bank of America Chief Accounting Officer Neil Cotty told analysts in April, of "bringing more relationships to us or paying a maintenance fee.""
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