Banks have been confirming during recent earnings calls what many consumers have been seeing in their monthly statements: Fees are rising fast, and they'll keep doing so for the foreseeable future. Fees are increasing especially on the two accounts consumers use most for transactions -- credit card accounts and checking accounts. The main reason for the increase in these "nuisance fees" is that banks are desperate for any incremental revenue they can find as credit costs remain elevated.
Credit card fees are rising especially quickly now, as banks seek to get increases in before new regulations take effect that make such changes a bit more difficult and time-consuming. That means higher over-limit fees if you charge more than your credit line, and higher late fees if you don't make a monthly payment in time. But even if you never do either of those things, prepare to pay more fees, because banks are increasingly reintroducing annual fees on accounts that don't generate enough income through charge volume or carrying balances.
The credit card business has become heavily concentrated, so only a few large banks should see much benefit from higher card fees, including JP Morgan Chase (NYSE: JPM ) , and Citigroup (NYSE: C ) .
Most of us have gotten used to the idea of "free" checking with few fees no matter how much we use them, but that's changing too. "Free" checking has been profitable for banks because of stiff fees -- often $30-$40 -- when customers overdraw their accounts.
According to the FDIC, about one-quarter of customers pay all these fees, essentially subsidizing the other three quarters. However, there is an increasing clamor in Washington for restrictions on banks' ability to charge these fees, since they fall disproportionately on low-income or elderly customers who can least afford them.
As a result, banks that rely heavily on overdraft fees are preparing to reintroduce monthly maintenance fees on checking accounts for most customers. If you keep a very high balance, then you may not see the new fees, but otherwise, there's a good chance your bank will soon ask you to pay $5 or $10 per month for the privilege of keeping a checking account.
These fees are a warning sign for investors. They'll mitigate the damage from soaring credit card charge-offs and prospective limits on overdraft fees, but they risk driving off customers too, so revenues may be at risk at the banks that depend most on these fees -- Bank of America (NYSE: BAC ) and Capital One (NYSE: COF ) on credit cards and Minnesota-based TCF Financial (NYSE: TCB ) on overdraft fees spring to mind.
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