Consumer advocates complain that banks are piling on charges that will unfairly burden low-income customers, who lack the financial wherewithal to qualify for exemptions. Critics say some banks are also not being forthcoming in disclosing many of these fees.
In the case of Wells Fargo, the bank is applying a monthly $5 maintenance fee to existing consumer checking accounts. Customers can avoid the fee by maintaining a balance of $1,500 or electronically depositing their paychecks or other “direct deposits” to the tune of at least $500 a month.
“A majority of our customers are able to take advantage of waiving the fee,” explained Wells Fargo spokesperson Richele Messick. “Many will see no impact at all because their accounts already meet the requirement.”
Messick said the fee is an extension of the bank’s decision in July 2010 to eliminate free checking on all new accounts. The latest charge does not apply to business accounts, which are already subject to various tiers of maintenance fees.
“We’re always evaluating our products, and making changes based on industry trends, the changing economic and regulatory environment,” she said.
In the first quarter, Wells Fargo recorded $654 million in income from debit card transaction fees, down 32 percent from the same period a year ago, before restrictions on plastic “swipe” fees took affect. The bank also posted a 7 percent increase to $1.1 billion in service charges on deposit accounts.
Ratings agency Standards & Poor’s estimates that an amendment to Dodd-Frank that capped debit-card transaction fees will cost banks $7 billion a year, about 1.5 percent of total bank revenue in 2011. The agency anticipates banks will continue introducing new service and product fees to offset the loss.
Other banks also add fees
Weeks before Wells Fargo’s announcement, Capital One and SunTrust Bank both alerted customers to pending fee hikes on checking accounts. For its part, SunTrust is imposing a $7 service fee that can be waived if a customer holds at least $500 in their account. The bank also upped overdraft fees from $25 to $36.
“There is a lot of pressure on banks because checking accounts — no matter how you cut it — cost money to provide,” said Nessa Feddis, vice president of the American Bankers Association.
She estimates that banks spend up to $300 a year to maintain a checking account because of expenses such as processing transactions and routinely updating technology. And the fees are not without precedent; monthly account fees have been employed in the past to offset expenses.
Feddis contends that $60 a year is not an insurmountable charge for a majority of customers with checking accounts.
But Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group, said new fees will hurt the people who can least afford them.
“People who live from paycheck to paycheck are the ones that are impacted the most by big bank fees,” he said.
Fees for monthly maintenance, wire transfers or overdraft start to add up over time, Mierzwinski said. He notes that overdraft fees are creeping up as banks seek to extract more income to offset the Federal Reserve’s limits on the number of time a customer can be charged.
Researchers at Pew Charitable Trusts found, for instance, that the median bank overdraft transfer fee — incurred when money is moved from savings to cover a checking account shortfall — rose 20 percent over 2010 to $12 last year.
“Banks have always wanted checking accounts to be charged on an a la carte basis. So they’re playing with the model to increase fee income,” he said. “Bank of America found it was a bad idea to charge for debit cards, but other banks are charging fees for nonelectronic banking and getting away with it.”
There has been sizable shift in the number of banks providing free checking. About 76 percent of banks surveyed by Bankrate.com offered such accounts in 2009, compared with roughly 45 percent last year.
“The cost of providing free checking had been underwritten by overdraft and debit interchange,” said Greg McBride, senior financial analyst for Bankrate.com, which tracks the banking industry. “You put into effect regulations that squeeze both of those revenue streams, and free checking becomes the obvious casualty.”