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?