Why Free Checking Accounts Are a Thing of the Past

By Sterling Wong  SEP 25, 2012 9:05 AM

Banks are cutting back on free non-interest checking accounts because of Dodd-Frank regulations.


MINYANVILLE ORIGINAL Thanks to regulatory changes, US banks are cutting back on "free" checking accounts and raising ATM charges to record highs, a new survey finds.
According to financial research firm BankRate.com, which looked at 477 checking accounts from 247 banks and thrifts, only 39% of all non-interest checking accounts offered by US banks are available to customers free of charge, compared to 45% a year ago, and a high of 75% in 2009.
Additionally, the average monthly fee that customers are paying for these checking accounts also rose 25% to a new record high of $5.48, while the average minimum balance they must maintain increased 23% to $723.
Meanwhile, the average cost of using an ATM also went up for the eighth successive year to another new high of $2.50.
The gradual decrease in the availability of free checking accounts is one unintended consequence of the Durbin Amendment, introduced in the Dodd-Frank financial reforms, argue the banks.
In the past, banks charged merchants $0.44 each time a customer paid using a debit card. After the Durbin Amendment went into effect, banks could only levy a fee of up to $0.24. The amendment, together with another law introduced in 2010 that capped overdraft charges, meant banks would lose up to $10 billion in revenue per year. To compensate for the revenue loss, US banks have to raise revenues from other sources. The likes of Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), and JPMorgan Chase (NYSE:JPM) tried to introduce debit card usage fees last year, but met with a strong pushback from customers.

It doesn’t appear likely that banks will back down from this trend of charging more to maintain checking accounts, even though customers are just as frustrated with this situation as they were with the debit card fees.

72% of respondents in the BankRate.com study said they would think about switching banks, which is an increase from 64% last year. However, as the Wall Street Journal notes, “changing banks entails the hassle of rerouting direct-deposit payments and uprooting automated bill-paying arrangements. Many bankers are pushing ahead with the new, higher fees in a bet that customers won't switch.”

Indeed, it seems unlikely that the fee hikes will draw too big a backlash. A new survey from Harris Polls and Google Consumer Surveys, which evaluated customer experience at the four biggest retail banks in the US, found that customers were happy with their experiences overall. Chase was tops in terms of customer satisfaction, with 59% of Chase customers giving the bank a “satisfied” or “extremely satisfied rating. Citibank (NYSE:C) was second at 55%, while Bank of America (48%) and Wells Fargo (47%) obtained marginally failing scores.

Twitter: @sterlingwong
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.