Regulation Fuels 21% Surge in Checking Fees

Consumers pay about 21 percent more in fees for basic checking accounts than they did six years ago, according to a study released today.

An average consumer may pay about $7.72 a month in a combination of monthly and automated teller machine fees this year compared with about $6.36 in 2006, according to the study by Pleasanton, California-based Javelin Strategy & Research, which looked at fees on basic checking accounts offered by 30 financial institutions.

Fees have increased as regulations have curtailed some of banks’ related revenue sources, Javelin said. Rules requiring banks to get consumers’ consent for overdraft protection, and limiting what banks may charge merchants on debit transactions, have cost the industry about $12.2 billion annually, according to the study.

“There are essentially more restrictions on the way banks can do business, so they really need to search for ways to address that revenue shortfall,” said Beth Robertson, director of payments research for Javelin.

Managing security and fraud risks also has increased the expense of offering checking accounts, she said. The annual cost to banks for checking accounts averages $192 to $359 per account. Costs vary by customer and how they use their accounts, the report said.

Community Banks

Javelin compared fees for the largest financial firms to those of mid-size institutions and community banks. The largest group had about $179 billion to $2.3 trillion in assets and included Bank of America Corp., JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) The smallest were those with about $4 billion in assets such as Middlesex Savings Bank, based in Natick, Massachusetts, and Martinsville, Virginia-based Carter Bank & Trust. (CARE)

The increase in the fees compares with an average annual inflation rate of about 2.4 percent over the same period, according to data compiled by Bloomberg.

Large banks generally charge higher monthly fees compared with mid-size and smaller institutions, with an average fee of $5.88. Pittsburgh-based PNC Financial Services Group Inc. (PNC) and Detroit-based Ally Financial Inc. (ALLY) were the only two large institutions included in the study that don’t charge a monthly fee for basic checking, Javelin found. Out of the 10 community banks considered, seven charge no monthly fee and the average charge was about $2, the study found.

Comparing Fees ‘Impossible’

Fees for stop payments were among the largest of those Javelin examined, at $30.76 on average. The average insufficient funds fee has risen to $29 from about $25 in 2006, Javelin found.

Comparison shopping for the best account may be difficult as disclosures for checking account fees and key policies were often more than 100 pages long, according to a report released in April 2011 by the Pew Charitable Trusts that analyzed more than 250 accounts offered by the 10 largest U.S. banks.

“It’s very hard for a consumer to know the fees on their checking accounts by reading the disclosure documents,” said Susan Weinstock, director of the Safe Checking in the Electronic Age Project for the Pew Health Group. “It’s basically impossible for a consumer to comparison shop for a checking account.”

CFPB Inquiry

The Consumer Financial Protection Bureau last week started an inquiry into the impact on consumers of checking-account overdraft programs. The agency will examine whether banks order transactions from a customer’s account in a way to produce a greater number of overdraft charges, as well as the clarity of overdraft disclosures, the bureau said in a statement.

The average overdraft penalty charge is about $30, the Javelin study found. About 3 percent of consumers make 30 or more overdrafts a year, according to the report.

All of the banks examined in the Pew study said they reserve the right to reorder withdrawals from largest to smallest, which may increase overdraft charges.

Transaction reordering “makes it really impossible for even the most responsible person to know how much money is in their checking account,” Weinstock said.

Regulation that seeks to target specific fees, such as for overdrafts, may not be successful in lowering total bank-account costs to consumers, Javelin’s Robertson said.

Shifting Fees

“What’s going to happen is the revenue that’s needed to cover that expense for the bank is just going to shift” to another type of fee or charge, she said.

Some banks may look to increase income by charging additional fees for optional services that consumers value, such as for expedited processing on transfers, which customers may use to pay credit-card, utility or other bills that have due dates, Robertson said.

“Things like that are valuable to a consumer, because you avoid the late-payment fee and avoid the credit-reporting ding,” she said.

Banks may also try to steer customers to lower-cost services as they seek to balance fees and the cost of maintaining accounts. One Bank of America checking account waives an $8.95 monthly fee provided customers receive their statements online and don’t use live tellers for transactions.

About 86 percent of accounts examined by Pew would waive a monthly fee with a minimum account balance, and did so at a median of $2,500.

To contact the reporter on this story: Elizabeth Ody in New York eody@bloomberg.net

To contact the editor responsible for this story: Rick Levinson at rlevinson2@bloomberg.net.

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