Be careful what you wish for, consumers.
When nearly every big bank retreated on plans to charge consumers a monthly fee for using their debit cards, most cheered. Consumers stood up to Wall Street, and they won, the thought went.
Not so fast. "Now that banks have backed away from debit card fees amid consumer uproar, the question is where and how -- not if -- they will seek new ways to extract revenue out of customers," I wrote last week.
Cue this morning's New York Times:
Need to replace a lost debit card? Bank of America (NYSE: BAC ) now charges $5 -- or $20 for rush delivery.
Deposit money with a mobile phone? At US Bancorp (NYSE: USB ) , it is now 50 cents a check.
Want cash wired to your account? Starting in December, that will cost $15 for each incoming domestic payment at TD Bank (NYSE: TD ) . Facing a reaction from an angry public and heightened scrutiny from regulators, banks are turning to all sorts of fees that fly under the radar. ...
... What is more, banks are raising minimum account balances and adding other new requirements so that it is harder for customers to qualify for fee waivers.
"Banks tried the in-your-face fee with debit cards, and consumers said enough," said Alex Matjanec, a co-founder of MyBankTracker.com. "What most people don't realize is that they have been adding new charges or taking fees that have always existed and increased them, or are making them harder to avoid."
This was inevitable. According to a study by Marsh & McLennan released last year, more than half of all checking accounts are unprofitable for banks. Since then, new regulations have banned banks' ability to charge tens of billions of dollars in fees, primarily those charged to merchants every time consumers use their debit cards. With interest rates at all-time lows, the vast majority of checking accounts are now unprofitable for banks.
It's also a shame. The debit card fee most banks proposed -- $5 a month at Bank of America, for example -- was actually one of the fairest ways banks could recoup lost revenue and cover overhead expenses. The fee had two things going for it:
- It was optional. If you didn't use your debit card, checking could still be free or near-free at most banks.
- It was transparent. Consumers who used a debit card would have known exactly how much their checking account cost every month. The fees would show up on your statement, month after month.
Instead, it looks like we're heading back to the days where consumers think checking is free, but is actually subsidized with a raft of hidden and unexpected fees. What's been lauded as a big win for consumers may have actually pushed them back to square one.
Consumers aren't oblivious to this, of course. Rather than playing musical chairs with bank fees, many are opting out altogether, moving from for-profit banks to nonprofit credit unions with legitimately free checking services. About 650,000 have transferred their money into credit unions over the past month alone, fueled largely by the grass-roots Bank Transfer Day campaign earlier this month.
That's wonderful. Most consumers, needing only barebones banking services, will be better served at a credit union. It's a lot like investing. Most investors don't need an expensive full-service brokerage that lets them pretend like they're George Soros. They need something that lets them buy low-cost index funds, and that's it.
Still, I suspect at least some of those who switch from big banks to credit unions will have buyer's remorse. For all the nasty complaints you can fling at big banks like B of A, Citigroup (NYSE: C ) , JPMorgan Chase (NYSE: JPM ) , and Wells Fargo (NYSE: WFC ) , there's a reason tens of millions still bank with them: A branch in every neighborhood, an ATM on every street corner, 24/7 customer service, mobile apps, and robust online banking. Some credit unions offer comparable services, even reimbursing fees charged when retrieving cash from out-of-network ATMs. Others don't.
One alternative I don't think has received enough attention are the banking services offered by brokerage companies like E*TRADE (Nasdaq: ETFC ) and Charles Schwab (Nasdaq: SCHW ) . E*TRADE, for example, offers standard checking account services linked to a brokerage account, and refunds an unlimited number of ATM fees. Schwab offers something similar. Making non-electronic deposits (paper checks) can be cumbersome, but with most workers receiving their pay via direct deposit, this likely isn't high on a list of priorities. On the plus side, banking with your broker is probably the easiest way to get all of your assets -- checking and investments -- under one roof and in one account.
How have recent fees, regulations, and grass-roots movements changed how you bank? Let loose in the comment section below.