The new normal: Higher bank fees are here to stay

Bank of Amer­ica cus­tomers use ATM machines in New York. The third quar­ter earn­ings that banks have reported Tues­day show that they are strug­gling to make money the old fash­ioned way, by lend­ing to con­sumers and busi­nesses, when inter­est rates are at his­toric lows. New rules have stunted the banks’ abil­ity to col­lect cer­tain kinds of fees like check­ing account over­drafts and late credit card pay­ments, so they’re mak­ing up for it with new charges like Bank of America’s $5 monthly fee for using debit cards, which ignited a pub­lic firestorm that reached all the way to the White House. (Asso­ci­ated Press | Mark Lennihan)

PALLAVI GOGOI

AP Busi­ness Writer

NEW YORK — Higher bank fees are here to stay.

The lat­est third-quarter earn­ings reports from this week con­firm that banks are strug­gling to make money the old-fashioned way, by lend­ing money to con­sumers and busi­nesses. The main rea­son: inter­est rates are at his­toric lows. That makes it harder for banks to charge high rates on loans.

New rules have also cur­tailed var­i­ous kinds of tra­di­tional fees, cost­ing banks bil­lions in lost income. These fees include over­draft charges on check­ing accounts and fees for mak­ing late pay­ments on credit cards.

So, many of them are mak­ing up the dif­fer­ence with fees that aren’t cov­ered by the new rules. Bank of Amer­ica Corp., which reported results Tues­day, has set off a firestorm over its plan to charge cus­tomers $5 a month for using their debit cards. Even Pres­i­dent Barack Obama has taken the bank to task.

On Tues­day, Con­sumers Union became the lat­est to express out­rage. The group urged cus­tomers to switch to other banks or credit unions if big banks refuse to drop the fees.

“This debit card fee just adds insult to injury,” Norma Gar­cia, direc­tor of Con­sumers Union’s finan­cial ser­vices pro­gram, said. “It’s unfair for the banks to stick con­sumers with a monthly fee just to use their own money.”

Mak­ing money in the tra­di­tional way is becom­ing tougher for banks. In an effort to make up lost rev­enue, banks are rolling out new fees across the board:

— Citi will charge $20 a month start­ing in Decem­ber to some cus­tomers who don’t keep a bal­ance of $15,000 or more in their com­bined check­ing, sav­ings and invest­ment accounts or loan balances

— Wells Fargo & Co. started test­ing a $3 monthly fee for debit cards Fri­day in New Mex­ico, Nevada, Ore­gon, Wash­ing­ton and Georgia

— JPMor­gan Chase & Co. tested a $3 monthly debit card fee in Feb­ru­ary in Wis­con­sin and Georgia

— Sun­Trust Banks Inc. of Geor­gia intro­duced a $5 debit card fee for cus­tomers with basic check­ing accounts in June, and

— Regions Finan­cial Corp. of Alabama intro­duced a $4 fee for debit cards in October.

The fees have become a flash­point of anger and frus­tra­tion among the grow­ing num­bers of anti-Wall Street pro­tes­tors. They come in the midst of a tough eco­nomic cli­mate where mil­lions of peo­ple are unem­ployed. Some say the fees are a cal­lous response by banks that were bailed out dur­ing the finan­cial crisis.

On Mon­day, activists gath­ered in Burn­side Park in down­town Prov­i­dence, R.I. called on res­i­dents to close their accounts at Bank of Amer­ica. They accused the bank of “immoral” bank­ing practices.

“They’re cheat­ing the Amer­i­can peo­ple,” said Patri­cia Phe­lan, 28, of Prov­i­dence, who closed her two Bank of Amer­ica accounts. “They’re sneak­ing fees in.”

Banks say the lat­est round of fees was trig­gered by a new fed­eral law cham­pi­oned by Sen­a­tor Dick Durbin of Illi­nois. The law caps the amount banks can charge mer­chants for debit card usage at about 24 cents per trans­ac­tion, down from an aver­age of 44 cents.

The rule went into effect Oct. 1 and will whit­tle down rev­enue even fur­ther start­ing in the fourth quar­ter of this year. JPMor­gan said it would lose $300 mil­lion each quar­ter in income, Wells Fargo warned it would lose $250 mil­lion a quarter.

“It’s a sig­nif­i­cant loss in rev­enue and income and banks have to recoup that some­where,” said Ron Shevlin, senior ana­lyst at research firm Aite Group.

The results this week also reflect the strain of oper­at­ing under the new rules in a slow­ing eco­nomic envi­ron­ment. On Tues­day, Bank of America’s $6.2 bil­lion earn­ings in the third quar­ter came from account­ing gains and the sale of a stake in a Chi­nese bank, but its rev­enue and income was lower in almost all its busi­ness lines — credit cards, real estate and invest­ment bank­ing businesses.

On Mon­day Wells Fargo said its income from fees and charges plunged 7 per­cent in the third quar­ter, largely due to new reg­u­la­tions that limit over­draft fees and make it harder to raise inter­est rates on credit cards. Cit­i­group Inc.’s rev­enue dropped 9 per­cent from its North Amer­i­can con­sumer busi­ness because of fee curbs from new regulations.

“It’s a tough, tough envi­ron­ment to turn a profit,” said Paul Miller, bank ana­lyst at FBR Cap­i­tal Markets.

Nancy Bush, bank­ing ana­lyst at NAB Research, says the fees may have gone too far and are hurt­ing the banks’ pub­lic image. After all, most large banks have already elim­i­nated free check­ing accounts and insti­tuted fees for every­thing from bank state­ments to using tellers.

“Banks have been blud­geon­ing their cus­tomers in the past year with fee after fee, only adding to a tough envi­ron­ment,” said Bush, who is also a con­tribut­ing edi­tor at SNL Finan­cial. “It’s time for banks to reward cus­tomers a lit­tle bit and send a mes­sage that they real­ize times are tough.”

Posted by AP News on Oct 18 2011. You can follow any responses to this entry through the RSS Feed. Comments can be made below.