Free Checking Increasingly Scarce

Acct feesThe biggest banks have abandoned traditional no-fee checking accounts in the past year or so and raised account fees to record levels. While there is no sign yet of an exodus from the big banks, consumers are growing weary of the new fees some are charging.

Dangling an offer of $100 in free money, Jack Sellards’ bank persuaded him to open an additional checking account a few years ago. All was well until a monthly maintenance fee appeared last year and started gnawing away at the balance.

Sellards immediately closed the account.

“There were no fees at all when it started,” said the retiree, who lives in the Apopka, Fla., area. “But then the rules and fee structure just changed. There was no reason to keep it open.”

Once a big marketing draw for customers of all income levels, the free checking account may be an endangered species. Many of the country’s largest banks, such as JPMorgan Chase, Wells Fargo and Bank of America, are abandoning no-fee checking ? a staple of the business for several decades now ? as they look for ways to deal with a revenue squeeze caused, they say, by federal financial reforms.

“Some of the same banks that were the last to jump on the free-checking bandwagon are now among the first to jump off,” said Greg McBride, senior financial analyst for research firm Bankrate Inc.

People are clearly fee-weary, though there are no signs yet that account holders are switching banks in retaliation.

Nearly 65 percent of those polled by Bankrate in a recent study said higher fees would make them consider changing banks. Among those earning $75,000 or more annually, 75 percent indicated they were willing to switch.

“There’s a risk they are taking,” McBride said of the banks. “And the most likely ones to switch were the higher-income households ? those are the customers that the banking industry has spent gobs of money trying to attract.”

The banks complain that new financial reforms have significantly boosted their expenses, cut into their fee revenue and made no-strings-attached free checking too costly for them to offer. Last year, the government imposed limits on banks’ credit-card and overdraft-fee revenue; this year, banks are trying to overturn reforms that will soon cap the “swipe” fees they can charge to process consumers’ debit-card transactions.

They also point out that many customers can still avoid maintenance fees and other surcharges as long as they meet certain conditions, such as maintaining a specified minimum balances and arranging direct deposits.

“Banks really don’t want to raise fees on customers,” said Carol Kaplan, a spokeswoman for the American Bankers Association. “But regulators are forcing us to do it. Congress has severely hampered our ability to earn revenue, so it has to be made up in other ways. And some customers may be impacted in the process.”

Consumer advocates and others say the latest fee increases should motivate affected customers to shop around.

“You are probably going to have more customers shopping around now than any time in recent banking history,” said Stanley D. Smith, a finance professor at the University of Central Florida. “There could be a significant change, since so many who have gotten free checking for so long will be charged in some way. There is more impetus now for customers to shop than ever before.”

Most credit unions and local community banks, for example, still offer no-strings-attached free checking, as do many online banks. And some big regional banks, such as Atlanta-based SunTrust, Central Florida’s largest bank based on deposit market share, continue to offer free checking.

Credit unions have already seen a small uptick in customers: Nationwide, they added more than 1.5 million members from 2008 to 2010, an increase of about 1.7 percent, according to Callahan & Associates, a credit-union industry research firm in Washington, D.C.

It’s hard to tell how many of those new customers may have come over from a big bank, but credit-union executives hope it’s the beginning of a long-term trend.

“We believe it is gaining traction,” said Fred Becker, president of the National Association of Federal Credit Unions. “We still believe there is an increasing angst among consumers with what has happened with the big banks in recent years.”

But other research suggests that angst may not lead to action.

Although people frequently grouse about bank fees, they rarely switch financial institutions in large numbers. According to a recent J.D. Power survey, for example, only 17 percent of those who had switched banks in the past year cited fees as their reason for the move.

During the global financial crisis, the safety of one’s money became a top concern for many bank customers, and that did lead to some large-scale desertions. Washington Mutual and Wachovia Corp. ? each a large bank with a sizable presence in Central Florida ? lost billions in deposits during the 2008 crisis as customers fled the troubled financial institutions, which were acquired eventually by JPMorgan Chase (WaMu) and Wells Fargo & Co. (Wachovia).

Some customers will also bolt a bank after a takeover because of changes in personnel or customer-service practices, experts say. But according to J.D. Power, the No. 1 reason people cite for switching banks is convenience ? how close a branch is to where they live.

Most bank customers tend to stay put through thick and thin, said Orlando banking lawyer Rod Jones, a former state banking regulator. He cited his own mother, who has remained with the same bank for decades ? through six changes in ownership.

“It is very, very difficult to get people to change banks,” Jones said. “It’s seen as such a hassle ? signing the paperwork, changing over everything. I think it is mostly the inertia factor; especially these days, when there is so much change coming at us from all corners.”

Of course, some big banks may be pushing the limits this time around. Among the new accounts that Bank of America is test-marketing, for example, is one that charges customers $9 a month if they want to be able to talk face-to-face with a teller. Other banks have tried in the past to charge such fees but have fallen flat on their faces, said Smith, the UCF finance professor.

“That has never worked,” he said, though he added: “You never know this time around ? maybe it will be different. But history suggests that is not going to be a winner.”

For Jack Sellards, the Apopka-area retiree, the end of his free checking account prompted him to close it ? though he didn’t switch banks. He still has a primary checking account there that’s free because he meets minimum-balance and other requirements.

“We’re keeping an eye on what else they may do,” he said. “My wife is really the one who is more attentive to it. She’s a real penny-pincher; that’s the way we’re able to do as well as we do.”

Source: McClatchy-Tribune Information Services.