While banks largely blame new regulations for the big drop in fee income they've experienced since 2009, there's another factor they may be ignoring: consumers changing their behavior.
The fall in banks' fee income actually dates back to well before they got socked with new regulations on overdrafts and debit-card swipe fees, writes Dan Geller in BAI Banking Strategies:
The amount of money banks generate from fees on deposit accounts decreased from $36.2 billion in January 2011 to $34.1 billion by year end, a drop of $2.1 billion or 5.8 percent. This is not an isolated incident; rather it is a trend that started five years ago. Income from service fees on deposit accounts fell from $39.2 billion in December 2007 to $34.1 billion in December 2011, a fall of $5.1 billion or 13 percent.
The revision of Regulation E, which provides consumers a choice regarding their payment of overdraft fees for ATM and one-time debit card transactions, became mandatory for compliance July 1, 2010 and the caps on debit card swipe fees took effect in late 2011. While these two major regulatory initiatives might explain a reduction in service fees in the last two years, they can’t explain the decline in service fees that started in 2007.
If you talk to the banks, the whole reason their consumer banking divisions have struggled is new regulations, but that's always struck me as a little too convenient of an excuse. While I think regulations have definitely been squeezing banks' fee income, I think Geller is definitely on to something here.
Anecdotally, I've seen consumer awareness of bank fees increase dramatically, and it stands to reason that checking accountholders would be extra careful to avoid incurring fees at a time when unemployment is high and incomes are stagnant or falling.
Behind closed doors, some banking industry insiders call customers who are unprofitable because they don't incur enough fees "deadbeats," and, if Geller's right, with more people fitting into that category, it's no surprise banks are casting a wider net for checking fees. Our 2011 Checking Account Survey showed more banks yanking free checking and making it harder to avoid monthly maintenance fees, and I expect our upcoming 2012 survey to continue that trend.
What do you think? Are banks losing out on fees because of regulation, or are people just getting better at avoiding fees? Do you work harder to avoid bank fees than you used to?
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