Watch out as banks raise fees to fill revenue void

February 13, 2011|By Jay Hancock

The sign on Marian Foreman's bank changed from Union Trust to Signet to First Union to Wachovia over the past three decades. But it wasn't until Wells Fargo bought Wachovia two years ago that she thought seriously of taking her business somewhere else.

The staff insisted on offering new products. Her small savings account didn't seem to be enough. The path from the door to the teller became an obstacle course of salespeople, she said. (The signs on the bank's Maryland branches aren't scheduled to change to Wells Fargo until fall.)

"You can't just go into the bank, do your transaction and leave," said Foreman, 51, who lives in Randallstown. "They want you to get this account, that account. It bordered on harassment, in my opinion."

It was the fee for confirming her balance that prompted her to write a letter to top bank officials. She needed the account information on bank stationery for her daughter's financial-aid application for college.

That'll be $25, said the branch folks.

"I've been with this bank since it was Union Trust," Foreman remembers saying, after she objected to the fee.

"Well, I'm a Wells Fargo employee, and you have to give me $25," replied a branch staffer, according to Foreman.

Whether or not this depicts the future of American banking depends on you, the customer. It certainly has the potential.

Wells Fargo apologized to Foreman. She "had an experience that does not meet our standards," says bank spokeswoman Aimee Worsley. The bank is using the incident to train other employees in what not to do.

But Foreman's experience is likely to be repeated at other big banks as they seek ways to replace revenue lost as a result of financial reform. Look out for new fees in surprising places. If you don't like them, vote with your feet by finding another bank.

The urgency with which banks are importuning customers like Foreman can be measured by how much revenue they're losing under the new rules.

A cap on credit-card processing fees charged to merchants could cost Wells Fargo as much as $1 billion in lost revenue per year, CEO John Stumpf said two weeks ago at a Wall Street conference, according to Cardline.com. Across the industry. this so-called Durbin Amendment could cost as much as $9 billion, according to a study by CardHub.com.

The Durbin Amendment is a dumb law and might be repealed by Congress. But that hasn't kept big banks (it applies only to big banks) from scrambling to fill the hole.

Banks also stand to lose billions because of a prohibition on levying overdraft fees on ATM and debit cards without a customer's permission. This is why banks were pestering you, me and everybody else last summer to sign up for overdraft privileges. (Don't. The worst thing that will happen is that your debit will be rejected at the cash register. Meanwhile, you might avoid getting charged $25 for a $5 overdraft.)

Changes to credit-card law are also denting banking profits.

The most obvious source of new revenue is account maintenance fees. Bank of America, metro Baltimore's No. 1 bank in deposits, is testing products in other states that include basic checking and savings with a fee of up to $9 a month. Avoiding the fee requires high balances, buying other products from the bank or conducting business on the Internet and through ATMs instead of with tellers.

Expect something similar in Maryland from Bank of America later this year.

BB&T, metro Baltimore's No. 5 bank, is "rolling out our updated deposit lineup in the next few months," said spokeswoman Merrie Tolbert. She assured that even after the change it will be "easy for clients to avoid paying maintenance fees."

Details aren't out yet, but since BB&T CEO Kelly King told financial analysts last month that "the days of free checking are gone," BB&T customers might want to be on the lookout.

Wells Fargo/Wachovia, metro Baltimore's No. 4 bank, will stop offering Wachovia's free checking deal when it switches over to the Wells Fargo name this year, said spokeswoman Worsley. Basic checking will cost $5 a month, she said, but you can avoid the charge with a high balance, by having your paycheck deposited electronically or by doing other business with the bank.

Or you can switch institutions. M&T and PNC banks still have free checking with no minimum balance. So does 1st Mariner Bank, the largest Baltimore-based consumer banking company. Numerous smaller, community banks also have free checking and are likely to offer it for the foreseeable future.

Monthly maintenance fees are preferable to hidden charges and booby traps, consumer advocates say.

"As long as the fees are upfront and visible and there are ways to avoid them, that is more manageable to families who have to keep track of every penny," says Jean Ann Fox, director of financial services for the Consumer Federation of America.

But don't let your guard down. Balance-confirmation fees, overdraft fees, check-printing fees, bad-check deposit fees, transfer fees, account-closure fees and "Regulation D violation fees" (don't ask) are all waiting to pounce. (Wells Fargo reserves the right to charge a balance-verification fee but shouldn't have done it in Foreman's case since little research was involved, Worsley said.)

Banks are counting on collecting billions from the new fees. Whether they do is up to you.

jay.hancock@baltsun.com

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