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Banks Quietly Ramping Up Costs to Consumers

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Bank of America abandoned its $5 a month debit card usage fee in late October amid a firestorm of criticism.

By ERIC DASHPublished: November 13, 2011

Even as Bank of America and other major lenders back awayfrom charging customers to use their debit cards, many bankshave 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 mobilephone? At U.S. Bancorp, it is now50 cents a check.

Want cash wired to your account?Starting in December, that will cost $15 for eachincoming domestic payment at TD Bank. Facing areaction from an angry public and heightenedscrutiny from regulators, banks are turning to allsorts of fees that fly under the radar. Everything, itseems, has a price.

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Banks Quietly Ramp Up Consumer Fees - NYTimes.com http://www.nytimes.com/2011/11/14/business/banks-quietly-ra...

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“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 peopledon’t realize is that they have been adding new charges or taking fees that havealways existed and increased them, or are making them harder to avoid.”

Banks can still earn a profit on most checking accounts. But they are underintense pressure to make up an estimated $12 billion a year of income thatvanished with the passage of rules curbing lucrative overdraft charges andlowering debit card swipe fees. In addition, with lending at anemic levels andinterest rates close to zero, banks are struggling to find attractive places to lendor 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 $20a month from each depositor just to earn what they did in the past, according toan analysis of the interest rate and regulatory changes on checking accounts byOliver Wyman, a financial consulting firm.

For consumers, the result is a quiet creep of new charges and higher fees foreverything from cash withdrawals at ATMs to wire payments, paper statementsand in some cases, even the overdraft charges that lawmakers hoped to ratchetdown. What is more, banks are raising minimum account balances and addingother new requirements so that it is harder for customers to qualify for feewaivers.

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

Chase and Citigroup, which quickly distanced themselves from the debit cardusage fee, ratcheted up the price of their entry-level checking products withoutthe public relations nightmare. This month, Citigroup’s basic checking accountjumped to $10 a month, up from $8. Chase raised the fee on its standardchecking account to $12 a month in February; many of those customers werepreviously charged nothing at all.

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

“The long-term game is improving customer experience scores, so over time youwin more business and make more money,” said Todd Maclin, the head ofChase’s retail and commercial bank.

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

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Banks Quietly Ramp Up Consumer Fees - NYTimes.com http://www.nytimes.com/2011/11/14/business/banks-quietly-ra...

2 of 4 11/14/11 7:31 AM

But the economics have drastically changed over the past two years. Incomeearned on deposits has fallen, while the revenue gained from fees has plungedby as much as half because of the new regulations. Today, according to OliverWyman, banks are expected to take in, on average, between $85 and $115 in feesa year per account — making it especially hard to turn a profit on customers withlow balances.

“They have got to make up the income some place,” said Vernon Hill II, thefounder of Commerce Bank whose retail-oriented approach transformed it intoa large regional player before it was sold to TD Bank. He added: “I think we willsee 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 theConsumer Financial Protection Bureau to adopt a more consumer-friendlydisclosure form, akin to the nutrition label on food packaging, for all the feesattached to a checking account.

“Simply put, consumers have had enough of banks that try to sneak fees pastthem 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 couldpotentially 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 alsohoping that new products catch on. Some are steering lower-income customersto prepaid cards, which were not affected by the reduction in debit card swipefees.

TD Bank officials say one of their hottest products is a simple checking accountwith no minimum balance requirement introduced in March. Even though itcomes 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 ofbranches 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 fordeposits has fallen to 0.74 percent from 0.8 percent during the first six monthsof this year, according to Market Rates Insight. Most consumers barely notice,but it translates into real money — about $1.5 billion a month in savingsindustrywide.

Banks may also be betting that consumers will not notice the quiet creep ofexisting fees. As Richard K. Davis, U.S. Bancorp’s chief executive, told investorson a recent conference call: “We’ll see if our customers complain and move, orjust complain,” he said.

Some consumers suspect that banks have deliberately made it difficult to moveinto a cheaper checking accounts.

Ben Ryan, a 33-year-old novelist in Manhattan, said he recently spent 45minutes on the phone with several Citibank representatives just to switch out ofa midtier checking account that would carry a $20-a-month fee and into a morebasic one, where he could avoid a charge. Citi officials say they would violate the

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Banks Quietly Ramp Up Consumer Fees - NYTimes.com http://www.nytimes.com/2011/11/14/business/banks-quietly-ra...

3 of 4 11/14/11 7:31 AM

A version of this article appeared in print on November 14,2011, on page A1 of the New York edition with the headline:Banks Quietly Ramp Up Costs To Consumers.

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law if they automatically switched a customer into a different account, andbelieve requiring a conversation with a representative helps customers betterunderstand their choices.

But Mr. Ryan said the experience left him more confused. “You call, and theydon’t know what you are talking about. And then there all these differentoptions,” he said. “There is no simple way to switch.”

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Banks Quietly Ramp Up Consumer Fees - NYTimes.com http://www.nytimes.com/2011/11/14/business/banks-quietly-ra...

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