End of free checking accounts likely coming

Posted June 17, 2010 at 5:51 a.m.

Dow Jones Newswires-Wall Street Journal | Bank of America Corp.
and other banks are preparing new fees on basic banking services as
they try to replace revenue lost to regulatory rules, in a push that is
expected to spell an end to free checking accounts for many Americans.

Free checking accounts, which have been widely available for more than
a decade, have been a boon to middle-class consumers and attracted
low-income customers to the banking system for the first time.

Customers will likely be required to pay new monthly maintenance fees on the most basic accounts that don’t generate a lot of activity. To avoid a fee, customers will have to maintain certain account balances or frequently use other banking services, such as credit and debit cards, automated teller machines and online accounts.

“If you put $1,000 in a checking account and don’t do anything with it, it will be hard to get that for free,” says Sherief Meleis, a managing director at Novantas LLC, a consulting firm that advises banks. 

Some consumer advocates warn the new fees will whack consumers who now manage their bank accounts to avoid such charges. “Just because you made a lot of money on overdraft fees doesn’t mean you deserve the income and doesn’t mean you need the income,” said Ed Mierzwinski, director of the consumer program for the U.S. Public Interest Research Group, a liberal lobbying group, in Washington.

The transformation of checking accounts comes at a time when banks are bouncing back from the steepest financial losses in a generation and are facing new regulations. To accelerate that recovery and recoup losses from new banking rules, financial institutions are increasingly leaning on customers who don’t now generate enough revenue for the bank.

More than half of all checking accounts are currently unprofitable, according to a report issued last month by Celent, a unit of Marsh & McLennan Cos. It costs most banks between $250 and $300 a year to maintain one of the roughly 200 million checking accounts, according to industry estimates.

The situation is especially critical for Charlotte, N.C.-based Bank of America, which stands to lose more revenue than most other big banks because it is in the process of dismantling its checking-overdraft program in the face of new restrictions. Starting this summer, banks must receive customer permission before they can charge for overdrafts. But Bank of America has decided to drop most of its program altogether. The nation’s largest bank, as measured by assets, said largely because of recent changes to its overdraft policy, it will forgo $600 million in revenue this year.

To generate new revenue, Bank of America is quietly testing new pricing models throughout the U.S., with most changes expected in early 2011. Executives have ruled out a flat monthly fee for all customers and are developing a tiered structure that encourages customers to increase banking activity or use other services to avoid future charges.

Bank of America customers who only want a low-volume checking account will likely be asked to pay for it. Fees will likely be waived for customers who keep their balances high, use bank credit cards or tap its investment advisers. Bank executives declined to discuss specifics of the plan, saying it is still being formulated.

“Customers will have a choice,” Bank of America Chief Accounting Officer Neil Cotty told analysts in April, of “bringing more relationships to us or paying a maintenance fee.”

Banks say they stand to lose billions of dollars in revenue from separate new restrictions on credit cards and overdraft transactions that were announced earlier this year. They could lose even more from legislation winding its way through Congress. The Senate version of the financial industry overhaul bill, currently being reconciled with the House version, contains an amendment that could limit fees banks charge to merchants for debit-card transactions.

Financial institutions warn that such a measure would trigger higher fees on basic banking products, as well as the loss of rewards programs that are tied to debit-card use. U.S. banks collected $9.4 billion in banking fees in the first quarter, representing 16.5% of all noninterest income, according to the Federal Deposit Insurance Corp.

The new regulations could reduce the industry’s service fee revenues by as much as 20%, according to Sandler O’Neill + Partners, an investment firm that specializes in the banking industry. Bank of America’s service charges are 12% of revenues, excluding securities gains, and a 20% drop in such fees would mean a loss of $2.2 billion for the bank, according to Sandler O’Neill.

It isn’t clear if new fees under consideration would completely make up for revenue that will be lost as a result of regulation. But banks aren’t waiting to find out. “We’re not sitting around to get caught off guard,” Ed Barham, chief executive of Stellar One Corp., recently told investors. The Charlottesville, Va.-based bank, he said, is “driving other sources of revenue, of fee income at the retail side especially.”

Fifth Third Bancorp, a large regional bank based in Cincinnati, dropped its free checking account late last year and now offers packages that bundle checking with other services, such as fraud alerts, debit rewards or brokerage discounts for fees of up to $15 a month. The fee can only be waived with a certain type of checking account.

TCF Financial Corp., a Wayzata, Minn., bank that used “totally free checking” as its slogan, eliminated its free checking account earlier this year and replaced it with an account that charges a monthly $9.95 maintenance fee. The bank will waive the fee if a customer keeps a certain minimum balance or has direct deposit.



  1. dss36 June 17, 2010 at 7:33 a.m.

    Meh, the headline should read “End of Free Checking at BOA…..and other insolvent zombie banks.”
    This isn’t an end to free checking…and it has less to do with any regulatory changes than it does with BOA’s decade of non-existent underwriting standards. Many of the smaller and mid-sized banks that maintained prudent standards of practice over the last decade (while the BOAs of the world peddled straight garbage) will still be able to offer free checking accounts…even with the new “crippling” regulations. Depositors will simply need to move their funds to these local institutions.
    And as far as BOA is concerned, this isn’t really news, either. They’ve been spending the last 18 mos. inventing new fees – in banking, in credit cards, wherever – to try to recoup the losses they incurred from their decade of abhorrent business practices. The new regulations are simply a convenient excuse to execute the more aggressive fee hikes. Rest assured, if BOA had a stronger balance sheet, none of this would be happening (irrespective of what Congress passes or the Fed implements).
    BOA should adopt a variation of the LendingTree.com slogan – “When lenders make mistakes…you lose!” I hope BOA customers enjoy losing.

  2. Bankers are idiots June 17, 2010 at 7:59 a.m.

    The Headline should read “Banks Just Don’t Get It.” The new rules were passed as a response to banks nickle and diming their customers will all sorts of unfair fees. So instead of instituting solid business banking practices, they simply invent new fees to replace the old fees. In what should be a sector dedicated to serving the customer, it is a terrible business practice. Glad I don’t bank with BOA.

  3. chaz June 17, 2010 at 8:10 a.m.

    Banks forced everyone to get checking accounts with all of their promotions. they flooded the market with them and now they are paying the price. Nobody want to have three or four checking accounts. However, people may be entice by an offere for a higher interest rate or deal. I don’t know how many checking accounts I have turned down in the last 12 to 24 months. Probably at least 10. This is just bad business. Banks need to wake up and start working for the people again instead of padding the pockets of the executives.
    Wake up America. The Unites States is going broke. Start saving your money and stop buying non US made products.

  4. bobby dee June 17, 2010 at 8:33 a.m.

    I dumped BOA and Wells Fargo 10 years ago when I was hit with some fees. Now I can speak in person with the banker that makes the decisions. I reward him by investing money in his bank.

  5. Frank Watson June 17, 2010 at 8:34 a.m.

    I’d rather give the fees to a currency exchange than these bums.

  6. AJR June 17, 2010 at 8:37 a.m.

    This is why everyone should bank with a credit union and not with the money hungry banks like BoA and Chase. Credit unions are there for the consumer – the banks are their for their investors…

  7. gr8hands June 17, 2010 at 8:50 a.m.

    “It costs most banks between $250 and $300 a year to maintain one of the roughly 200 million checking accounts, according to industry estimates.”
    Really? My money goes in via direct deposit — which is just a single computer entry, nothing physical, no cash for them to store, just the energy for a single computer entry in a memory file.
    My payments are via the Internet — again, nothing physical, nothing for a human to touch, only entries in a single record.
    How could this possibly take $250-$300 a year on their part?
    What a joke!

  8. RegularGuy June 17, 2010 at 9:01 a.m.

    “Customers will have a choice,” Bank of America Chief Accounting Officer Neil Cotty told analysts in April, of “bringing more relationships to us or paying a maintenance fee.”
    Customers will also have the choice of moving their ‘relationships’ (you have to love bank euphemisms) to a community bank, or to a Credit Union.
    Yep, it’s all about ‘choices’, and BofA isn’t going to be the choice for many people.

  9. worsethanbefore June 17, 2010 at 9:01 a.m.

    More fees, what else would you expect from
    the destructive changes obama has burdened.
    It’s historic, the country was stupid enough to
    elect an inexperienced community organizer? and
    now the new taxes will be historic, unemployment rate
    will be historic (10% will be low in a year from now,
    once the taxes start hitting, look out!) the country
    hasn’t been this divided in the last 100 years.
    First the idiotic bailout of these banks, then the
    criminal takeover of GM, now this idiotic fund set up
    to distract the public from the incompetent response to
    the “crisis”. (everything with obama is either a crisis or
    a catastrophe) to the horrible insurance bill they call
    healthcare. Enjoy the change people. Embrace the new fees,
    remember, obama wants to redistribute your money to those
    that don’t have nor worked for it!

  10. KXB June 17, 2010 at 9:02 a.m.

    For the past 10-15 years, banks have changed their business model. Instead of offering attractive rates on CDs and savings accounts, they figured it would be easier to make money to offer credit cards with shifting rates and checking accounts with fees. Instead of shopping for the best deal, consumers have to shop around for the “least bad” deal.

  11. Jerry H June 17, 2010 at 9:09 a.m.

    Call me an optimist, but I suspect a handful of banks will break ranks and continue to offer free checking, thereby scooping up the vast majority of the personal banking business from banks like BOA. This is just BOA’s petulant response to the recent legislation designed to protect consumers from gouging by some banks. I’m a conservative, but there are times legislation IS needed to stop bad practices by banks that essentially have a monopoly.

  12. Steven June 17, 2010 at 9:10 a.m.

    “Customers will have a choice,” Bank of America Chief Accounting Officer Neil Cotty told analysts in April, of “bringing more relationships to us or paying a maintenance fee.”
    He left out the choice of leaving Bank of America entirely, which was my response the last time they added mandatory fees when I could get the same service elsewhere for free.

  13. david wayne osedach June 17, 2010 at 9:26 a.m.

    I can’t live without my debit card. I hope the monthly maintenance fees are $10 or less per month.

  14. bbnguy815 June 17, 2010 at 9:40 a.m.

    This will be a great way for credit unions to boost their membership. I’d leave my bank in a hearbeat and solely use my credit union account if this happens.

  15. So long BoA June 17, 2010 at 9:49 a.m.

    I’ll be dropping BoA the moment they institute these changes. IL has plenty of credit unions.

  16. Heron June 17, 2010 at 9:57 a.m.

    Chaz, you can greatly reduce the number of offers you get from banks by opting out of sharing your credit bureau information:
    You’ll still get the generic offers that Bank One sends to every mailbox, but you’ll skip out on the offers that banks send to you in particular. Less junk mail, fewer wasted trees! It’s worth doing.

  17. consumer advocate June 17, 2010 at 10:12 a.m.

    If you want the privilege of working with a top heavy, arrogant manager-led bank, then yes, you have to pay. After all, they are entitled to big bonuses no matter what. Customers need to pay for that.
    The people that are good with their money will leave, then how will BofA leverage those deposits 50x, which they pay zero interest on?
    Take your ‘relationship’ to a credit union. They have a fiduciary obligation to the member (customer).

  18. So long BoA June 17, 2010 at 10:13 a.m.

    I’ll be dropping BoA the moment they institute these changes. IL has plenty of credit unions.

  19. Nelly Torres June 17, 2010 at 10:44 a.m.

    Note: The paper reduction act forced seniors and others to open checking accounts to recieve their benefits from the government. The dirty little secreat is that this was a deal so that banks had more deposits over night which they could use to invest and make money. Now people who are already below the poverty line will be forced to give money for a service they would of never unter taken. Racketering at its best.

  20. rich June 17, 2010 at 10:59 a.m.

    I guess if they start having people paying for bank accounts then the governmnet has to back out that value in the GDP that is added. Our GDP is over-stated by the Government over a trillion dollars becasue they reported 1) owners of a house receives by not having to pay themselves rent and having free banking accounts. Really? They play with the numbers so you will keep on voting the way you are voting.
    lies,lies, and more damn lies

  21. Jefferson June 17, 2010 at 11:06 a.m.

    The result of Barry and his liberal whacko friends.
    Everyone is always a bad guy, trying to cheat “hard working” customers. Banks are not innocent. But how does anyone expect them to earn a profit is all of their fee income is eventually regulated? Feeling stiffed? Walk down the block to the next guy. Perhaps he will treat you better.

  22. Philip June 17, 2010 at 11:08 a.m.

    Two words:
    . . . and any idiots that keep trying to blame Obama, the Republicans oversaw the collapse of the S & L industry in the early 90’s and it is the Republicans that are in bed with the plutocratic class. Democrats, many of whom are culpable too, have’t the spine to truly take the party of the rich to task. Point at Obama and three more fingers point back at YOU (er, Republicans).

  23. ChgoDave June 17, 2010 at 11:16 a.m.

    How dare these banks? What they should do is terminate the top executives who screwed everything up, and use those millions to cover their supposed costs instead of gouging those of us who keep our lives in order.

  24. midwestjim7 June 17, 2010 at 11:21 a.m.

    Jefferson, you are exactly right! When a Socialist/Leftist government declares war on corporate profits, many consumers will feel intense pain in their wallet. How’s the CHANGE workin’ for ya, so far? Don’t forget to take out the trash on November 2, 2010!

  25. SSa June 17, 2010 at 11:25 a.m.

    Like others, I have opened a few checking accounts in recent months solely to take advantage of the money the banks were giving away (Chase, Citi, BoA, National City…). Like others, I’ll be happy to drop them if they want to charge me to use my money.
    These “losses” they boo-hoo about are only compared to recent years when they’ve been bilking consumers. Would love to see a comparison to 25 years ago, adjusted for volume of course.

  26. jerry June 17, 2010 at 11:28 a.m.

    Thanks Dems! Those who are responsible with their checking accounts and credit cards will now have to pay fees, while those with overdrafts and late payments get off scot-free.

  27. Rich June 17, 2010 at 11:31 a.m.

    Do you think the computers and software that handle those transactions are free? Each new payment method adds costs, although labor costs may decrease with electronic transactions. And, yes, those electronic transactions cost people their jobs at the financial institutions…

  28. Doug June 17, 2010 at 11:38 a.m.

    There’s a failure in responsibilty here. Who brought down the banking system, bankers or their customers? If they lost money, then they pay lower dividends and bonuses for a while, just like the rest of us. But the assumption that a business is run for the benefit of its stockholders–meaning that the business soaks anybody in reach so long as it keeps those dividends and stock price up (and the executive boneses that are tied to them–makes banks (and insurance companies and…fill in the blanks) fundamentally irresponsible, refusing to take their thwacks when they’ve made big mistakes. The solution is certainly not to nationalize these businesses (socialism introduces its own problems), but stronger regulations can help.

  29. Mike June 17, 2010 at 11:44 a.m.

    There are alot of folks whining about the banking “fat cats” and how horrible they are. Do you realize how many ppl these banks employ?
    You do realize that the majority of folks who work at banks DONT get huge bonuses, DO work hard just like every other industry, HAVEN’T done anything more than you have to impact current economic problems?

  30. Barry June 17, 2010 at 11:55 a.m.

    I can’t believe how many people blame the politicians for everything. This is simply a matter of profit and how a bank proposes to earn it. The banks that are in trouble are there because they lent money without exercising prudence or due diligence, all in the pursuit of ever greater profits. The financial overhaul going on IS the right thing to do. Many banks have have done things which have taken advantage of the uneducated. I was going to pay some loans I have with BOA online until I discovered that there is a $3 convenience fee for doing so. I therefore decided to just write the checks and mail them, saving me $30 dollars annually on each loan. I guess it costs them less to process a check manually and that is my choice and theirs. The regulations covering retailers and debit cards is needed to level the playing field. My company pays 50 cents per debit card transaction or 3% for each credit card transaction. These rates are set by the processor and we have no ability to negotiate these. Retailers are at the mercy of the industry and are required to pay even more than the 3% if a corporate rewards card is used. As a retailer, we don’t know when and if these cards are used until we get the settlement statement from the processor. It only cost my small retail business an additional 35,000 dollars last year on top of the 3%, all so the card issuers could reward their customers. Yes, something needs to be done, but the small people can’t do it themselves.

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  32. 007 June 17, 2010 at 12:16 pm

    “Starting this summer, banks must receive customer permission before they can charge for overdrafts.”
    So in other words, you break a rule of the account by bouncing a check and now the bank has to [b]ask you[/b] if it’s OK to charge you?
    Only a democrat would love this sort of legislation, but then they’re really good at writing checks with other people’s money, aren’t they?

  33. IrishEyes June 17, 2010 at 12:25 pm

    “Customers will have a choice,” Bank of America Chief Accounting Officer Neil Cotty told analysts in April, of “bringing more relationships to us or paying a maintenance fee.”
    Yes, customers do have a choice and I hope they choose to dump BOA.

  34. Philip June 17, 2010 at 12:38 pm

    One must really begin their arguement(s) from one of two perspectives:
    A) Society’s purpose is to serve business, or
    B) Business’s purpose is to serve society.
    After this, it’s all policy brushstrokes.
    Wall Street, Big Banking, Enron, BP, Haliburton Blackwater . . . we see what happens when we “elect” a legislature, presidents that believe in option A. And god help those lower and middle-class lemmings that think that they too have the “stuff” to become an aristocrat if only the “government” would get out of the way.
    Can we say “Joe-the Plumber”? What a joke.

  35. KC June 17, 2010 at 12:43 pm

    Have you been listening to that guy from BP too long? “Small people”?????

  36. Brian June 17, 2010 at 1:28 pm

    I don’t understand why anyone would do business with the mega banks anymore – BoA, Chase, Citi, etc. You know they’re going to screw you one way or another. I used to belong to Firstar, which was a pretty decent sized regional bank before they were taken over by US Bank. Customer service was good at first but steadily declined and fees steadily increased after that happened and I eventually had enough and moved everything over to a local credit union. I admit I was a little apprehensive at first, especially about the limited number of their ATMs and paying fees at others. But my fears were quickly put aside. You can go to almost any other credit union and use their ATM for free if your card is from another credit union. Customer service is outstanding and they still know me by name. If I need a loan it’s a painless process. And they don’t play games with “funds availability” like the banks do – my money is available (all of it) as soon as it’s deposited no matter what time of the day it is. No fees on common service either. You couldn’t pay me enough money to switch back.

  37. IT guy June 17, 2010 at 1:32 pm

    I agree with Rich. You have no idea what it costs to keep systems up and running 24×7. And, not to mention the cost of hiring *humans* to drive from atm to atm, loading them with money, retrieving deposits, etc. Do you think it costs nothing to send you a text message indicating a debit/credit was charged agaisnt your account?
    To avoid (or reduce) fees, I say banks should charge check-writing customers a fee. It costs a lot of money to process anything from paper. This will put an end to all the people (mostly women) who write checks for paying groceries at your Jewel or Dominicks. Come on, people…this is year 2010…learn to use a damn debit card!

  38. get a clue June 17, 2010 at 1:34 pm

    Typical ranting and raving about “redistribution” and such from someone who apparently has selective memory.
    The “bailout” was pushed through and signed under the previous administration’s watch. Then continued under this one.
    The onerous fees these banks have been charging, all the while lending our deposits at TWO, THREE, FIVE, even TEN times the interest rates they pay the account holders, have raked in more than enough over time to necessitate a cap on fees. Too bad these ‘well-qualified’ corporate executives thought it would be better to pillage the coffers and throw it onto the taxpayers to foot the bill once the sink started sinking.
    If i didn’t know better, I would think that you were the PR firm for the financial industry. However, you sound like the typical “bootstrap” conservative who does everything “right” and can lecture everybody else on why they are not living the life that you have.

  39. tank johnson June 17, 2010 at 2:27 pm

    Good bye Commercial banks! Hello Credit Union, a pleasure to put my money in your account.

  40. Craig June 17, 2010 at 2:51 pm

    All of the commentors who are talking about moving their accounts from the big banks to other providers (community banks, credit unions, etc.) are exercising their free market power to do so, which is great. However, if BofA or others want to charge for their products and services (imagine that), then that should be their right.
    What I also hope you are also doing is directing your disagreement at politicians such as Senator Durbin, who is sponsoring the amendment that would cap debit card transaction costs for banks. Price fixing and increased regulation always lead to more work/cost for business and higher costs for the consumer.
    Let the free market work, unlike what happened with Fannie, Freddie, Citibank, et al, and let the consumer pick the winners and losers, not the government.

  41. tank johnson June 17, 2010 at 3:07 pm

    Man you need to pay attention. Under the new rules a purchase with a debit card that results in a negative balance CANNOT occur unless the consumer has given the banks prior permission to allow these transactions resulting in negative balances to occur.

  42. Disgusted June 17, 2010 at 3:51 pm

    The asinine wingnuts complain about government failure to regulate evil banks, then complain about Obama regulating them. You can trust a wingnut about as far as you can throw one.,

  43. Jeff June 17, 2010 at 4:17 pm

    Folks that keep saying hello to credit unions better keep an eye on the bill by Durbin. If it passes you won’t be using debit cards, because Credit unions won’t have access to them because the big banks won’t allow it.

  44. Aaron June 17, 2010 at 4:54 pm

    @worsethenbefore: Your inflammatory comments smack of someone who still believes our current economic situation is the result of a president who has been in office for less then 18 months. Need I remind you of who was in the Oval Office for nearly 7 years when the economy began to unravel. Typical Tea Party uneducated opionions abound here. Your innacurate & needlessly hateful diatribe and short term memory loss suggest someone who needs medical attention.

  45. D June 17, 2010 at 10:46 pm

    I have a TCF account, as do others in the family. TCF instituted these fees months ago, claiming they were connected to this legislation… Problem was that they didn’t tell any of us that ahead of time! I never received notice, nor did my sister. So helpful. Not a credit union near me, sadly…

  46. ItemProcessingTeamLead June 17, 2010 at 11:55 pm

    YES, folks, it does cost for banks to maintain accounts.

    Either print statements or maintain electronic records; multiple layers of audits and regulation, both internal and external from multiple governing bodies. Screening transactions for OFAC, kiting, structuring, fraud, forgery, CTR, etc. Legacy systems from merged or acquired banks. Maintaining records for seven years, keeping some records onsite, and the myriad computer systems to maintain them. IT systems and security to safeguard customer information. Fees to the FDIC to insure customers’ deposits, check processing costs to correspondent banks. Converting paper items to electronic images, verifying and balancing each transaction, correcting customer errors, transmitting items to the Fed or the bank the item is drawn on, clearing on-us items, …. I work for a bank in operations, and nothing is free.

    Banks have subsidizied those free checking accounts in hopes of greater relationships, such as loans and investments, MMAs, CDs, etc. If you want just a DDA relationship, prepare to pay your share. If not, go to a local currency exchange. Their fees are higher and they have fewer locations; you won’t have FDIC insurance; your money will be under a mattress or in a shoebox; you’ll have to carry cash instead of a debit card; tracking what you spend will be harder in cash. Paychecks will not be issued via direct deposit, meaning customers will waste time and gas going in person to a bank.

    Do I need to go on? You get what you pay for, and most people have been subsidized for years.