Banks may charge for services that once were free
With revenue slipping, banks may follow the lead of airlines and start charging fees for services customers once took for granted.
The challenge is to do so without angering as many people as the airlines did, said Alpine Bank Regional President in Charge of Retail Operations Tom Kenning.
Alpine is one of many banks across the country in the information-gathering stage of figuring out how to deal with revenue shortfalls linked to a poor economy and the extra costs associated with new regulations. Some banks already moved forward with changes, such as Bank of America, which lost $7.65 billion in the third quarter this year. The bank recently created an “eBanking” checking account that charges a customer $8.95 a month unless the customer goes paperless with statements and makes deposits and withdrawals through an ATM or computer instead of using a teller.
Bank of America charges $12 for a basic checking account unless a customer maintains an average balance of at least $750. Many banks, including American National Bank, Vectra Bank, Wells Fargo and U.S. Bank, charge a monthly fee for at least some of their checking accounts unless a minimum balance is maintained or the customer has at least one check deposited regularly into the account via direct deposit.
One of the last bastions of truly free checking may be credit unions. Most of the eight local credit unions offer checking accounts without a monthly service fee or a direct deposit or minimum-balance requirement. Steve Harrington, marketing and business development director for Coloramo Federal Credit Union, doesn’t envision credit unions ending free checking anytime soon.
Harrington said credit unions can offer free checking more easily than banks because credit unions are not-for-profit organizations owned by their members.
“It’s kind of like: Why fee yourself?” Harrington said.
Free checking is becoming an endangered commodity at for-profit banks. The percentage of non-interest U.S. checking accounts that cost nothing dropped from 76 percent in 2009 to 65 percent in 2010, according to a study released Monday by financial information website BankRate.com. The study also found the minimum balance needed to keep a non-interest checking account free increased from a little over $100 in 2008 to about $250 in 2010. ATM, bounced check and service fees also increased year-over-year.
Wells Fargo Community Banking President Steve Irion said he doesn’t anticipate Wells Fargo will charge customers for seeing a teller, but the bank did get rid of its only remaining free checking account at the end of June. Irion said very few people used free checking because other accounts had more to offer for free, and most people can avoid paying a fee by having direct deposit or a minimum balance.
“I think what happened with us, and I’m sure a lot of places, is the free checking gets people in the door,” Irion said. “Quite often there was probably something better they qualified for, which is why so few people had free checking.”
Regulations banning banks from collecting once-lucrative fees, such as the $35 charge for making a debit-card purchase with insufficient funds, are costing banks revenue. Other regulations, like the one requiring every person who touches a loan to be licensed, cost banks money in extra hours and training, Kenning said.
“There has been a tremendous amount of new regulation as a result of the meltdown. Most of it comes at the expense of banks,” he said.
Kenning said he doesn’t see Alpine Bank charging to see a teller, but the company will look at its fee structure.
“Things that are valuable to customers will probably have a fee with them,” he said.
Changes affect every bank differently, and with a smaller service area than national chains, First National Bank of the Rockies Executive Vice President Kevin Cochran said his bank may have to go through fewer changes than Bank of America, the largest U.S. bank. Cochran said he understands why larger banks, which have more money to gain or lose, have to make changes, but he doesn’t anticipate his bank changing any fees at this time.
Grand Valley Bank Board Vice Chairman John Frederick said local banks have a tendency to reflect what’s going on in a community, which means banks here hurt during times like these when Grand Junction’s economy isn’t performing well.
Frederick said fee changes are “always under discussion,” but no decisions have been made so far on that subject at Grand Valley Bank.
“Probably there will not be any real dramatic fee increases across the board for us,” Frederick said.