Archive for the ‘Fees’ Category

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.



Nationwide, credit unions are en vogue. And while some of these new credit union members will transfer their checking accounts, direct deposits, electronic bill pays, and even their credit cards and loans, many will not. The majority of the benefit goes to the bigger Credit Unions, those with assets over $100 Million seeing the biggest increase in new members from banks. Unfortunately for the small to medium size Credit Unions, it’s hard to compete for lack of products/services which cost money to roll out. A good example of this is mobile banking.

Credit Unions need to step up their Social Media Marketing efforts to compete and give consumers what they want. Failure to do so will only put more pressure on those to survive. Now is the perfect time to implement a Social Media Strategy.

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.

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.

Even 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 U.S. 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.

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.

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.

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.

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.

In the end whether it is a Bank or Credit Union, businesses need to make a profit. Without profit, there will be no jobs. The flexibility for the consumer is still an overwhelming amount of choices and options to choose. In the end each of us have the freedom to choose, consumers need to do their homework, and choose what best suites their needs.

What is your choice? Stay or Switch?

Debit Cards

Debit Cards

Bank of America was the last of the top five banks to rescind their debit card fee going into effect January 1.

“For a lot of consumers, this was the last straw,” said Jean Ann Fox, director of financial services for the Washington- based Consumer Federation of America. “Banks have been making a lot of changes to accounts, adding fees and raising the minimum balance needed, and consumers were clear that they objected to one more fee.”

  • Card issuers must seek other ways to replace revenue lost after the U.S. capped fees on debit-card purchases last month at about half the previous level. The limits, mandated by the Dodd- Frank Act, may cut annual revenue by $8 billion at the biggest U.S. banks, according to data compiled by Bloomberg Government.

Like any other business they need to make a profit to support their employees, and shareholders. No profit, No jobs…so as usual these are tough issues and tough decisions. Banks will seek other avenues to ensure they maintain their profitability. While the focus has been on big banks, there are numerous smaller banks who were not going to charge their customers for the use of debit cards. However, the attention from the media has highlighted this issue. This has driven customers to Credit Unions who are not for profit institutions, who typically are not as much fee driven.

After months of banter between bankers and retailers, both agree to dislike the new Federal Reserve cap on debit card swipe fees.

Swipe Fees

Last week, the Fed voted to cap the fees at 21 cents per transaction, up from an earlier proposed cap of 12 cents. Banks and credit unions say the cap is still too low to cover the cost of maintaining debit card networks. Retailers say the new cap is too high, particularly for small businesses with tight profit margins. The fee cap will take effect Oct. 1.

According to industry sources.

  • It will cost banks and credit unions approximately $10 Billion.
  • Free checking will continue to dwindle. Down 11% over the past year.
  • You will be required to have a higher minimum balance to avoid fees.
  • In September, Bank of America will start charging a $5 fee for lost debit cards.
  • On July 29, U.S. Bank will increase its annual fee for individual retirement accounts to $30 from $10.
  • Other banks are charging fees for everything from paper statements to talking to a customer-service rep.

Only 38% of bank branches complied with a simple request for a schedule of fees required by the Truth in Savings Act.

If you are charged with fees you deem unreasonable, by all means raise your concerns, you may get it waived. However, be sure that you have read all the fine print, including your monthly statements or any other correspondence.

As with any regulation assessed to banks, retailers or credit unions they are in business to make money. When government laws are passed to limit income, creativity and redistribution of new fees will be created on the part of banks, and credit unions to replace lost revenue. As regulation becomes more onerous, it will accelerate mergers and failures of institutions not strong enough to survive. Hence the big get bigger…and Too Big To Fail comes into play.

A new federal law curbing fees on debit-card transactions could wipe out $9 billion in revenue annually for issuers.

The Durbin Amendment, which is part of the financial-overhaul bill enacted in July is one part of the reform. It calls for the Federal Reserve to determine that rates on debit-card transaction or interchange fees are “reasonable and proportional,” and that they cover the ” actual incremental cost” of the transaction. The Fed still has several months to set new terms. “The Durbin Amendment could significantly impact consumers by increasing the cost of their everyday debit card transactions, limiting their payment choices and impacting industry innovation,”Banks are scrambling to gain back some of the lost revenue from this and prior regulatory changes. Among the new tactics being considered:

  • Emphasizing prepaid cards, which are exempt from the new rules.
  • Adding new fees to existing products.
  • Having minimum balances for checking accounts.
  • Watering down debit card reward programs., estimates that if the Fed cuts interchange fees by half — considered a possible scenario by the industry — debit-card issuers will annually lose $9.1 billion, or $18.35 per debit card, in revenue.U.S. general purpose debit card purchases totaled $1.45 trillion in 2009, up 7.5% from 2008, according to the Nilson Report, which tracks the payment industry. Spending on U.S. Visa- and MasterCard-branded prepaid cards totaled $ 49 billion in 2009, accounting for 3.39% of all debit card purchase volume that year. Bank of America, Wells Fargo &Co. (WFC) and J.P. Morgan Chase & Co. (JPM) are the top U.S. issuers of debit cards. The three accounted for 38% of all debit card purchases in 2009, according to Nilson.

In August, Bank of America introduced its most basic checking account with a monthly fee of $8.95.

  • Customers may avoid this fee if they sign up for paperless statements and use automated teller machines or ATMs, and not bank tellers, for routine transactions such as deposits and withdrawals.
  • Last month, the firm took a $10.4 billion charge in its third quarter because of “limits to be placed on debit interchange fees … which will reduce future revenues.”
  • It is also testing different checking accounts, allowing customers to choose between a monthly maintenance fee or avoid this fee by using a Bank of America-issued debit or credit card or keeping higher account balances or a mortgage with the company.
Starting this month, Citigroup Inc. (C) will charge a monthly fee of $8 for its most basic checking account.
  • Customers can avoid this fee if they use their account at least five times in a month, including to pay bills and withdraw cash from an ATM. Monthly fees for Citigold — its fully loaded checking account with perks, including free paper checks and no annual fee on certain Citi credit and debit rewards cards — will be $30.
  • Customers may avoid this fee if they satisfy certain conditions, such as maintaining a minimum balance of $50,000 across their checking, savings and money market accounts.

Unintended consequences of financial reform always seem to raise the cost of doing business to the consumer, and the banks and credit unions still need to make their profits.

I wonder if the Free Toaster will be offered again for new accounts?

Let me know if you think these financial reforms are a good thing?