Consumers of America beware! American banks are are reaching out for new income, and they are reaching for your wallets.
New federal regulations that went into effect in August make it more difficult for banks to charge fees when customers overdraw their accounts. In addition, many credit card fees have been capped, and some have been eliminated altogether. And coming soon to an ATM or retailer near you: Reduced fees that banks can charge retailers and others when customers use debit cards.
It all adds up to billions of lost dollars to the banking industry. And the banks are not going to go quietly into that good night.
Cost of New Banking Regulations Will be Transferred to Customers
Banks are busy scheming to come up with new and different ways to make money. To offset potential multi-billion dollar losses, banks are considering increasing other fees and reducing services, actions that will impact millions of banking customers.
Bank customers are likely to see changes in services such as bigger balances required to qualify for free checking accounts, higher ATM fees, higher fees for certified checks, and shorter grace periods for credit card payments. Some banks have already decreased interest rates on savings accounts and certificates of deposit.
James Dimon, the Chairman and CEO of JPMorgan Chase, said If you’re a restaurant you can’t charge for the soda, you’re going to charge more for the burger.” Dimon told a group of analysts in July that he guessed all revenues lost due to the new regulations would be “re-priced into the business.”
Translation: Banks will not bear the costs of regulations designed to protect customers from exorbitant charges; customers will.
Some of the New Limits on Banks
Effective February 22, 2010, banks can no longer charge fees to customers for exceeding credit card limits. Credit card issuers cannot increase interest rates during the first year, and any increase will only be applied to charges made after the first year. Interest rates increases must be reevaluated every six months and reduced if necessary. Regulations cap high fee credit cards, and all credit card payments must be applied to the highest interest balances on a card. Also, federal regulations mandate late payment fees cannot exceed $25 and cannot be more than the customers minimum payment.
Banks cannot charge overdraft fees on debit card and ATM withdrawals unless the customer has agreed, in writing, to participate in the banks overdraft protection program. The new rule does not apply to checks or automatic bill paying.
The Federal Reserve also plans to limit the fees retailers pay when customers use debit cards. It is not clear how much the reduction will be, but it will have an impact on the banks bottom line.
Increased Banking Service Fees on the Horizon
Bank of America has been testing new products designed to increase income. It introduced its new eBanking account in August. The new account features no minimum balance and no monthly maintenance fees, but customers will receive monthly statements on line and make deposits and withdrawals without using a teller. Otherwise they will be charged an $8.95 fee.
A Bank of America spokesperson said customers can avoid fees by using self-service options, or do more business with the bank (read that to mean have more money on deposit). Other banks such as Comerica, which expects to lose up to $5 million in the second quarter of 2010 due to reduced overdraft fees are considering similar options.
Banking Analysts Warn Higher Costs will Hurt Low-Income Consumers Most
Some banking industry analysts warn that the primary victim of increased banking costs will be lower-income consumers, many of whom will be driven out of the commercial banking system.
Richard Bove a banking analyst at Rochdale Securities remarked the situation reminded him of the days when banks charged customers $2-$3 for to speak to a teller, or a dollar for entering the bank more than three times a month. “The costs of this regulation are going to fall on the consumers” said Bove.
A new government agency the Consumer Financial Protection Bureau (CFPB) has been established to monitor banks and ensure they do not charge any outrageous new fees. Such is the trust America has that its banks will deal fairly with customers.
Credit Unions May Benefit from Higher Banking Fees
Credit Unions could be among the principle beneficiaries of the new federal regulations and resulting cost increases. Some analysts believe that the increase in banking costs will drive people to the non-profit environment of credit unions. Whether that happens remains to be seen, but some consumers, fed up with high overdraft fees and other charges have already signed on with credit unions.
An article in the Detroit Free Press quotes Vanessa Daniel, a buyer with MGM Grand Casino as saying leaving Chase Bank and becoming a credit union member is “the best thing I’ve ever done”
Source: Catherine Yung, “New Fees By Banks Are On the Way”, Detroit Free Press
Source: Kathy Chu, “Banks Find Ways to Boost Fees; Checking Accounts are Latest Target”, USA Today