It looks like Bank of America is courting controversy with a fee increase yet again. The second largest U.S. bank by assets is experimenting with a revamped line of checking accounts. Under the plan, the basic "Essentials Account," which will replace the company's MyAccess account, will no longer offer a fee waiver for setting up a monthly direct deposit or maintaining a minimum balance of $1,500. Instead, account holders will face a mandatory $6 to $9 monthly fee in the states affected.
From Dan Fitzpatrick and David Enrich at The Wall Street Journal:
The search for new sources of income is especially pressing at Bank of America, where 2011 revenue dropped by $26.2 billion, or 22 percent, from its 2009 level …
In addition, some Bank of America branch employees in the Northeast have already been trained to handle the first phase of a U.S. rollout, one branch manager said. Bank officials have made no final decision about specific charges or the timing of a national rollout, though the effort has gained even more urgency in the past few months. People close to the bank said Chief Executive Brian Moynihan is determined to plow ahead. Bank of America declined to comment.
It is unclear whether the bank, which counts more than 55 million U.S. households as customers, will stick with its initial idea for a basic flat-fee checking account that doesn't offer a way to avoid paying a charge. That scenario is considered less likely than telling checking-account customers they will face a new fee unless they go online or take other steps outlined by the bank.
According to The Wall Street Journal report, the new fee structure will be tested in Arizona, Georgia and Massachusetts first before a larger national rollout.
While it's sure to rile up some account holders, this fee hike is really no surprise. It follows similar fee hikes from Citi late last year, which saw monthly maintenance fees rise from $8 to $10 and get harder to avoid, and Chase, which boosted monthly fees to $12 last February. The big difference is, it looks like Bank of America is getting rid of all the ways you used to avoid monthly maintenance fees, such as meeting a minimum balance requirement or signing up for direct deposit. That's pretty novel, and it's going to infuriate some customers.
But it was obvious even before the debit-card fee debacle late last year that it was inevitable big banks would start pushing fees higher, leading to a series of showdowns with customers over those fees.
A couple of key regulatory changes have contributed to that trend. First, the Federal Reserve changed to Regulation E requiring banks to get customers' OK before signing them up for lucrative "courtesy" overdraft protection. Then the Fed implemented new caps called for in Dodd-Frank on the "swipe fees" banks charge merchants for processing overdrafts.
That's also coinciding with record low rates for consumer loans, which many banks fund through their checking divisions, reducing the "spread" between the cost of maintaining those accounts and the interest they were collecting on the money when they lent it out.
Taken together, those events have upended big banks' business models with respect to checking accounts. After all, banks built their business model for checking around trying to sign up as many customers as possible for free checking and watch the money roll in from swipe fees, overdraft and consumer lending. To do that, they built or bought thousands of branches and hired thousands of people. Now, banks have to find new ways to generate profits from checking account holders, and it's looking more and more like monthly maintenance fees are going to be the main way they do that.
Should Bank of America decide to roll the new fee structure out nationwide, we'll see many customers who still want free checking going elsewhere. And that's just as well. If people don't need a bank with a branch on every corner, then they shouldn't pay for one. Theyre are plenty of local credit unions and community banks that offer free checking going forward, and customers who consider low checking fees a priority will be able to find one.
What do you think? Will you ditch Bank of America if they introduce an impossible-to-avoid monthly fee on their basic accounts?
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Update: Bank of America has since announced the new fee structure will apply only to new accounts, not existing customers.