Say Goodbye to Free Checking and Hello to New Bank Fees

The era of free checking accounts is coming to an end. Many consumers will face an extra $144 a year in account fees, plus higher annual dues for their debit cars, and increased ATM charges may be on the way.

J.P. Morgan Chase (JPM), which has has 27 million checking accounts, has announced it will impose fees ranging from $10 to $12 per month on those accounts -- though the fees can be avoided if you maintain a minimum daily balance of $1,500 or set up a direct deposit of $500 or more each month into your account.

"Honestly, we are looking at the pricing of all of our products and our revenue streams based on some of the changes that are going on right now," says Christine Holevas, spokeswoman for Chase.

Meanwhile, Bank of America (BAC), which has 57 million consumer and small business customers, has started a pilot program to charge new customers in Arizona, Georgia and Massachusetts for checking accounts, says spokeswoman Anne Pace. The four account options on offer have fees ranging from $6 to $25 a month, but customers maintaining a minimum daily balance of $5,000 won't have to pay the fees.

When the results of the test programs are clear, Pace says, the bank will decide whether it will impose the fees nationwide.

A Push Back Against Financial Reforms

Brian Foran, a banking analyst at Nomura Securities International In New York, says the rising fees are part of an effort by the banks to recoup some of the income they lost from two recent regulatory changes.

Thanks to last year's passage of the consumer-protecting Credit CARD Act, the Federal Reserve has changed the rules so that banks can no longer automatically charge overdraft fees on debit card purchases. Customers must actively opt into allowing their account to be overdrawn, or their charges will simply be rejected when their account balance is insufficient.

The larger portion of banks' lost income comes from a reduction in the interchange fees paid on the use of debit cards. Merchants typically paid 2% of a transaction to the banks and credit card companies, but that has been reduced. Under new rules adopted under the Durbin Amendment -- passed as part of last year's financial reform law -- banks can only charge 12 cents per transaction, a decline of about 70% from what they previously earned.

Foran says he estimates banks made $8.7 billion in interchange fees before the new regulations, but will now make only $1.4 billion, a loss of $7.3 billion in revenue.

"J.P. Morgan has a secondary motivation of trying to send a pretty clear message to Washington that if you regulate prices, we have to charge more somewhere else," Foran says.

Looking for Cover to Recoup Their Lost Billions

While big institutions like Chase and Bank of America are the first movers in this trend, smaller banks are preparing to take similar steps. U.S. Bancorp (USB) said on its recent investor conference call that it will likely be forced to implement some kind of fee structure.
"In general, the smaller banks are looking to the bigger banks to lead the way because that will give them air cover," Foran says.

Nomura estimates big banks may make up as much as 40% of their lost revenues through checking account fees, $1 billion to $2 billion more via annual fees for debit cards, and $500 million to $1 billion by reducing their rewards program benefits for debit transactions.

"Every bank knows that Durbin killed free checking, and every bank knows they need to raise fees, but no bank is terribly excited about being the first bank to raise fees because when you do, a bunch of customers are going to leave the bank and go to some other bank across the street," Foran says.

Lower-Income Customers Will Leave

In an investor's day presentation last month, Chase estimated that 15% of its customers will no longer be able to qualify for free checking. "Based on current attrition rates, we expect 50% to 60% of these customers to leave Chase within the next year," the bank said.

The bank expects to lose many of the lower-income customers it acquired when J.P. Morgan took over Washington Mutual in September 2008 after it was seized by bank supervisors in the largest bank failure in U.S. financial history.

Under the new Chase pricing plan, most customers will be charged $12 a month for their accounts unless they meet the requirements for avoiding the fees. But former WaMu customers in California, Oregon and Washington state will only be charged $10 a month, Holevas says.

In addition to its new checking account charges, Chase has also started a pilot program to boost the fees it charges non-customer for withdrawals from its ATM machines in Texas and Illinois. The fee will be $5 in Illinois and $4 in Texas, up from the current nationwide withdrawal fee of $3. TD Bank Financial Group (TD) and PNC Financial Services (PNC) are also raising their ATM fees.

"You never make tons of money on ATM fees to non-customers, but the idea is you really don't care if you piss off someone else's customer," Foran says. "But it's never going to come close to offsetting the lost revenue from the Durbin Amendment."

Increase your money and finance knowledge from home

How to Buy a Car

How to get the best deal and buy a car with confidence.

View Course »

Intro to Retirement

Get started early planning for your long term future.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Avoid charges altogether by using the Akimbo Visa Prepaid Debit card. You can keep your bank and just load the money into your Akimbo card. I've found using this to be a blessing and have even set up direct deposit to the Akimbo card. Check out their site at . They really do have good customer service and the best thing about them is that they are absolutely free.

October 12 2011 at 4:10 PM Report abuse rate up rate down Reply

I used to be a banker till a few weeks ago. I hated offering my customers crappy products. I was let go for not meeting sales goals. I'm glad I'm gone. It's nice not to be told to lie to my customers. I will never go back to banking!

June 05 2011 at 4:40 AM Report abuse rate up rate down Reply
hi cat

BankSTERS and politicians...they care about YOU!

March 26 2011 at 2:52 PM Report abuse rate up rate down Reply

I can't help but laugh at the poor whiners. This bill was signed into law entirely by a DNC controlled House, Senate, and President. It's long pass time We acknowledge that under achievers do little to support banks, businesses, and the community at large in America. Rather than go to a local credit union, which have higher failure rates, try banking with foreign national banks in America. While they can't legally give you their best interest rates in America, They can legally transfer your account overseas, "upon request" and than give real service, and far superior interest and protection rates, that the DNC Senate refuses to offer here. You also get Superior tax breaks. I learned as a teen, giving something for nothing, only encourages deadbeats, and anti social behavior, towards others who have more than them. They also create longer lines for those of us actually paying for the services. Post Offices and Check Cashing establishments offer the same services as banks, at lower fees, for ALL those of the lower expectation class. They also require no ID, and allow superior anonymity if needed. Footnote ... The local community banks actually wrote up, the majority of failed mortgage loans. Credit unions do nothing to improve your credit scores, via their structure. If you can't afford the fees, it's obvious you don't really need the services. There was a time CEO,s offered to repay disgruntle alleged contributors, until sadly the postage began costing more than the rebate checks.

March 21 2011 at 5:02 PM Report abuse rate up rate down Reply
1 reply to jagcapt007's comment

Arrogance in action.

March 26 2011 at 9:13 AM Report abuse +1 rate up rate down Reply

I am sorry my husband and I kept our bills paid and tried to save for old age. We are now paying CEO'S for their terrible money grabbing ideas that are gradually trying to take away the middle income's idea of a decent retirement. Like the MAN who put manhole covers in the middle of the road, they should all be shot! Spend your money as you make it. Enjoy fancy vacations and whatever else makes you feel good. Enjoy life today, as long as you aren't hurting someone else and let those CEO'S go to work with their hands instead of your money!

March 21 2011 at 8:20 AM Report abuse +2 rate up rate down Reply

I'm leaving Chase. In order to keep paying their CEOs, CFOs, board of directors, etc, obscene salaries and benefits, they are raping the consumer. These are the same greedy dirtbags who caused this recession.

March 21 2011 at 7:50 AM Report abuse +3 rate up rate down Reply

Thanks again to our politicians, they will show them greedy banks. Now everyone will pay for checking and debit transactions.

March 21 2011 at 7:48 AM Report abuse +2 rate up rate down Reply
1 reply to ddeleto's comment

Unfortubately, what the Durbin regulation did was too little and way too late due to the abberational DE REGULATION that took place originally as these 'financiers" know NO boundaries and are way to use to gauging the consumer no matter the consequences as we, the mere ordinary 'consumer' REMAIN the acceptable collateral damagee's who WILL bear the brunt of the cost of THEIR business and PROFITEERING !!

March 21 2011 at 9:19 AM Report abuse +1 rate up rate down Reply

When banks impose undeserved fees, they'll lose customers going out the "back door" than they'll be able to bring in & down falls their ability to lend, and soon online banks will thrive. I'm in the banking/financial field & their just beginning to feel the pain they inflicted the public for years. I'm not worried about my job as I am protected by the Assets that the Lord allowed me to achieve without lying to my customers.

March 21 2011 at 5:54 AM Report abuse +1 rate up rate down Reply

the bank supposted to be using my money , to make money right?
so is everyone else's money-- why? fees? they already been paid enough! again , this another mistake, or legal scam!

March 21 2011 at 12:36 AM Report abuse +3 rate up rate down Reply

It's time to start withdrawing our money....What we need to do is to start a banking co-op, similar to food co-ops. We pool our money together, open a community based bank and go from there----think of it as a community credit union.... :-)Where there's a will, there's away and this is the land of innovation!

March 21 2011 at 12:03 AM Report abuse +4 rate up rate down Reply