Banks Quietly Ramping Up Costs to Consumers

By Eric Dash, The New York Times

14 November 11

ven as Bank of America and other major lenders back away from charging customers to use their debit cards, many banks have been quietly imposing other new fees.

Need to replace a lost debit card? Bank of America now charges $5 - or $20 for rush delivery.

Deposit money with a mobile phone? At US Bancorp, it is now 50 cents a check.

Want cash wired to your account? Starting in December, that will cost $15 for each incoming domestic payment at TD Bank. Facing a reaction from an angry public and heightened scrutiny from regulators, banks are turning to all sorts of fees that fly under the radar. Everything, it seems, has a price.

"Banks tried the in-your-face fee with debit cards, and consumers said enough," said Alex Matjanec, a co-founder of MyBankTracker.com. "What most people don't realize is that they have been adding new charges or taking fees that have always existed and increased them, or are making them harder to avoid."

Banks can still earn a profit on most checking accounts. But they are under intense pressure to make up an estimated $12 billion a year of income that vanished with the passage of rules curbing lucrative overdraft charges and lowering debit card swipe fees. In addition, with lending at anemic levels and interest rates close to zero, banks are struggling to find attractive places to lend or invest all the deposits they hold. That poses another $8 billion drag.

Put another way, banks would need to recoup, on average, between $15 and $20 a month from each depositor just to earn what they did in the past, according to an analysis of the interest rate and regulatory changes on checking accounts by Oliver Wyman, a financial consulting firm.

For consumers, the result is a quiet creep of new charges and higher fees for everything from cash withdrawals at ATMs to wire payments, paper statements and in some cases, even the overdraft charges that lawmakers hoped to ratchet down. What is more, banks are raising minimum account balances and adding other new requirements so that it is harder for customers to qualify for fee waivers.

Even the much-maligned debit usage charges have effectively been bundled into higher monthly fees on checking accounts. Bank of America abandoned its $5 a month debit card usage fee in late October amid a firestorm of criticism. Yet, it more quietly raised the cost of its basic MyAccess checking account by more than $3 a month earlier this year. Monthly maintenance fees now run $12 a month, up from $8.95.

Chase and Citigroup, which quickly distanced themselves from the debit card usage fee, ratcheted up the price of their entry-level checking products without the public relations nightmare. This month, Citigroup's basic checking account jumped to $10 a month, up from $8. Chase raised the fee on its standard checking account to $12 a month in February; many of those customers were previously charged nothing at all.

Officials at all of those banks are adamant that they have been transparent about the price increases and are providing ample ways for customers to avoid the monthly charges, like maintaining a minimum balance or signing up for direct deposit. Given the uproar, some bankers say the ultimate answer lies in enticing customers to give them more of their business in other services - not by making up the lost revenue on checking accounts.

"The long-term game is improving customer experience scores, so over time you win more business and make more money," said Todd Maclin, the head of Chase's retail and commercial bank.

It costs most banks between $200 and $300 a year to maintain a retail checking account, from staffing branches to covering federal deposit insurance premiums. In the past, the fees banks collected from merchants each time customers swiped their debit card or overdrew their account covered much of that expense. Banks offered "free checking" to the masses as a result.

But the economics have drastically changed over the past two years. Income earned on deposits has fallen, while the revenue gained from fees has plunged by as much as half because of the new regulations. Today, according to Oliver Wyman, banks are expected to take in, on average, between $85 and $115 in fees a year per account - making it especially hard to turn a profit on customers with low balances.

"They have got to make up the income some place," said Vernon Hill II, the founder of Commerce Bank whose retail-oriented approach transformed it into a large regional player before it was sold to TD Bank. He added: "I think we will see a lot more fees."

Some policy makers are already fed up. This month, two Democratic senators, Richard J. Durbin of Illinois and Jack Reed of Rhode Island, urged the Consumer Financial Protection Bureau to adopt a more consumer-friendly disclosure form, akin to the nutrition label on food packaging, for all the fees attached to a checking account.

"Simply put, consumers have had enough of banks that try to sneak fees past them that are hidden in fine print or imposed with no notice at all," they wrote. Last year, a Pew Charitable Trusts study found that bank customers could potentially incur 49 different fees on a typical checking account.

New fees, of course, will cover a small part of the gap in profits. Banks are also hoping that new products catch on. Some are steering lower-income customers to prepaid cards, which were not affected by the reduction in debit card swipe fees.

TD Bank officials say one of their hottest products is a simple checking account with no minimum balance requirement introduced in March. Even though it comes with a $2.99 monthly fee, almost 300,000 customers have signed up. And nearly every major bank has embarked on a cost-cutting campaign, eliminating branches and staff. After a 15-year expansion, the number of branches has fallen almost 1.4 percent to 98,202 from its peak in 2009, according to SNL Financial.

Banks are also lowering the rates they pay savers. The average interest rate for deposits has fallen to 0.74 percent from 0.8 percent during the first six months of this year, according to Market Rates Insight. Most consumers barely notice, but it translates into real money - about $1.5 billion a month in savings industrywide.

Banks may also be betting that consumers will not notice the quiet creep of existing fees. As Richard K. Davis, U.S. Bancorp's chief executive, told investors on a recent conference call: "We'll see if our customers complain and move, or just complain," he said.

Some consumers suspect that banks have deliberately made it difficult to move into cheaper checking accounts.

Ben Ryan, a 33-year-old novelist in Manhattan, said he recently spent 45 minutes on the phone with several Citibank representatives just to switch out of a midtier checking account that would carry a $20-a-month fee and into a more basic one, where he could avoid a charge. Citi officials say they would violate the law if they automatically switched a customer into a different account, and believe requiring a conversation with a representative helps customers better understand their choices.

But Mr. Ryan said the experience left him more confused. "You call, and they don't know what you are talking about. And then there all these different options," he said. "There is no simple way to switch."