As banks adjust to revenue-crimping rules, free checking fades away

The word "free" is starting to disappear from banker vocabulary, particularly in the context of checking accounts.

"Free checking has been a bit of a misnomer," Bank of America spokesman Don Vecchiarello said.

Banks really never had free checking accounts with no strings attached, he said.

After regulatory decisions that crimp revenue on other products, however, banks are starting to impose new or higher fees.

At U.S. Bank, the Free Checking product is morphing into Easy Checking. The new product has a $6.95 monthly maintenance fee, or $8.95 with paper statements. Like many of its competitors, U.S. Bank will waive the monthly fee if the customer has direct deposits totaling $500 each month or an average daily balance of $1,500.

So most full-time workers and retirees on Social Security can avoid the monthly maintenance fee by signing up for direct deposit, spokeswoman Teri Charest said.

Bank of America on May 24 increased the monthly maintenance fee to $12 from $8.95, but it will waive the fee if the customer gets a monthly direct deposit of $250 or keeps an average minimum balance of $1,500.

U.S. Bank and Bank of America also offer other ways to avoid the monthly fee.

At Wells Fargo Bank, the basic no-frill account is called Value Checking and it has a $5 monthly maintenance fee. However, a customer can avoid the fee by having $250 monthly in direct deposits or a $1,500 average daily balance for the month.

Wells Fargo stopped offering free checking to new customers last July, spokeswoman Cristie Drumm said. In February the bank notified customers that the basic accounts would be no longer free starting in May, she said.

Chase Bank previously offered free checking accounts to anyone with $100 for an initial deposit.

"In February of this year we began taking a fresh look at our checking accounts as a result of changes in competition, regulation and customer behavior," spokesman Gary Kishner said in an email. "In Nevada, we began implementing a $12 monthly service fee for Chase Total Checking, our basic checking account. Our goal is to offer Chase customers the best accounts in the industry while running a sustainable business."

Like its competitors, Chase gives customers several ways to sidestep the maintenance fee.

Customers may make one direct deposit of $500 or more, keep a minimum daily balance of $1,500 or a $5,000 average daily balance through all Chase deposit accounts and investment accounts combined.

Alternatively, a customer who pays $25 or more in fees for checking-related services also gets no monthly fee, he said.

Asked why so many institutions are boosting fees, the American Bankers Association points to an amendment to the Dodd-Frank financial reform law that caps fees for processing debit card transactions.

The new law directs the Federal Reserve Board to set limits, and the Fed said the maximum will be 12 cents per transaction starting in July. Now, the average estimated fee is 45 cents.

The cap applies only to institutions with more than $10 billion in assets but community bankers are following suit to remain competitive. Bankers looking to make up for the lost revenue have turned to checking fees.

The American Bankers Association estimates that it costs $150 to $200 to open a new account and $250 to $300 yearly to maintain accounts. Banks previously used revenue from other sources to cover those costs.

"Americans have gotten so accustomed to having free checking accounts that they forget it costs the bank something to keep the accounts operational," association spokeswoman Carol Kaplan said.

"(Banks) have to be able to make a profit," Kaplan said. "There's no business that's going to stay in business by selling things at losses."

Sen. Jon Tester, D-Mont., is sponsoring a bill that would give bankers a two-year reprieve on the debit fee cap while studies are conducted. But Tester's bill represents a challenge to Senate Majority Whip Richard Durbin, D-Ill., who submitted the debt fee cap amendment, Congressional observers say.

That puts Senate Majority Leader Harry Reid, D-Nev., in a no-win situation, analysts said. If he supports Tester's measure, he would be attacking a measure backed by Durbin.

The bankers association on May 26 quoted Reid saying the issue will be brought up for consideration after the one-week Memorial Day recess.

"We are going to get rid of the issue with the swipe fees as soon as we can," Reid said.

Kaplan said it's possible that banks will reduce checking account fees if Congress delays the debit card transaction fee cap.

"Banks are going to do everything they can to remain competitive," she said.

Contact reporter John G. Edwards at
jedwards@reviewjournal.com or 702-383-0420.