By: Daryl Tolliver
A wave of legislation designed to protect consumers has caused financial headaches for big banks with significant holdings. Heavier regulation, renewed oversight and increased transparency has resulted in billions in losses for large banking corporations, and as a result, many are trying to recoup losses by increasing fees and setting stricter account management standards. However, a recent analysis in Consumer Reports suggests that this move may backfire on large banks and turn customers toward more flexible and affordable credit union and community banking programs.
Currently, many large-scale institutions are imposing costly charges for services that were previously free, such as receiving paper statements. U.S. Bank and PNC recently announced a $25 fee to close a bank account, the analysis notes. Chase imposes a $12 fee on standard checking accounts and Bank of America charges a $5 fee to replace lost debit cards.
"Fee income really has served to stabilize revenue in light of the volatile interest-rate environment of the past dozens years," Greg McBride, Bankrate.com’s senior financial analyst, told Consumer Reports.
Industry experts say big financial institutions will likely continue to resort to a fee income structure in the form of added expenses for services, lower interest rates for savings and checking accounts and stricter account requirements. In addition, financial professionals expect larger banks to place more emphasis on bank-issued credit cards as well as encouraging relationship banking to make it more difficult for individuals to disentangle multiple accounts.
"Banks are closely examining what costs they can eliminate and where they might be able to charge, and what the market will bear and not drive customers away," Beth Robertson, director of payments research for Javelin Strategy & Research, told Consumer Reports.
In response, experts predict a migration of consumers from large-scale institutions to credit unions and community banks in order to take advantage of greater savings and a more affordable fee structure. Informa Research Services data, commissioned by Consumer Reports, demonstrates that fees for overdraft charges top $35 at large banks, while averaging $28 for community banks and $25 for credit unions. In addition, other common charges consumers incur for services or behaviors tend to be less costly at flexible credit unions, such as monthly non-interest checking fees or minimum balance requirements of $6 and $500 compared to $10 and $1,115 at bigger institutions.