Banks Requiring Lower Balances, Higher Penalties
Banks are making it easier for customers to avoid fees on their checking accounts, but they’re coming down harder on those who bounce checks.
And, according to an industry study released Thursday, some banks are preparing to raise fees for using the increasingly popular automated teller machines.
The study, by the Bank Rate Monitor, found banks are lowering the minimum balance that customers need in order to qualify for no-fee checking. The average minimum balance for avoiding checking fees dropped by 60% to $346 between March and September, according to the survey of 250 banks and thrifts. Many other banks and thrifts waive monthly checking account fees if customers use direct deposit for paychecks.
Washington Mutual--now the nation’s largest thrift after acquiring Great Western Bank and American Savings Bank--is one of a relatively small number of institutions offering free checking accounts without any strings attached. And that policy has been implemented at both of the California thrifts it acquired.
However, a recent survey by California Public Interest Group found that Washington Mutual’s American Savings Bank, for example, charged more for bounced checks and overdraft fees than most other competitors in California.
Analysts say that on average customers bounce six checks a year, although that number is skewed by people who have a propensity to bounce checks.
By offering free checking or dropping the minimum balance requirements, banks have found that that is likely to prompt customers to play closer to the edge, resulting in more bounced checks and more balance inquiries, which also generate fees.
As such, consumer advocates say customers have to be vigilant to avoid penalties, because the consequences of a slip-up are more severe.
According to the Bank Rate Montior study, banks raised the average tab for bouncing a check to $20.79 from $20.54. It can go as high as $28.45 in Philadelphia, the study found. The cheapest places to pass a rubber check? San Francisco and Los Angeles, with averages of $12.11 and $12.44, respectively.
At Bank of America, the first three bounced checks in a year are $10 each, it’s $18 each for an additional six, and $25 each for the next nine or more checks.
In raising bounced-check fees, banks are taking a leaf from the credit card industry.
Although credit card companies have eliminated most annual fees, they charge big penalties when customers are late on payments or go over the limit on their accounts. Some are even charging those who pay their credit card bills off in full each month.
Automated teller machines are another battleground for fees.
About 48% of surveyed banks impose charges on non-customers who use their ATMs. But “some institutions said they were waiting for public furor over the fees to die down before deciding to implement surcharging,” according to the study.
California’s top two banks, Bank of America and Wells Fargo Bank, operate half of the state’s 15,000 ATMs and both charge non-customers for using their ATMs. However, as Charlotte Chamberlain, analyst with Jefferies & Co. in Los Angeles, pointed out, many smaller banks and savings and loans have banded together and don’t charge fees to non-customers.
In the Pacific Northwest, Seattle-based Washington Mutual also does not impose ATM surcharges, and that policy is expected to be applied in California. Washington Mutual already has stripped away or lowered a variety of other fees at Great Western.
Citibank, in a move directly counter to the minimum-balance trend, said Wednesday that it would triple to $6,000 the minimum balance that its customers need in their accounts to avoid checking-account fees. That is about six times the average minimum balance for no-fee checking in New York. Citibank’s strategy effectively forces its nonprofitable customers who carry a low balance to switch to other banks or pay fees.
In comparison, Wells Fargo has a $1,000 minimum for no-fee checking. If customers can’t meet the $1,000 minimum, they can also apply their savings balance toward the minimum--but the minimum is raised to $3,000 for the combined accounts. Wells Fargo customers also can get free checking if they have direct deposit.
At Citibank, to soften the blow and at the same time encourage customers to do one-stop banking, the bank will allow customers to count Citibank credit card and mortgage balances against their minimum balance, in addition to checking-account balances.
The nation’s second-largest bank conceded that about 100,000 of its customers will pay more in fees when the new policy takes effect in February. But that will be an incentive, said spokeswoman Susan Weeks, to get customers to open multiple accounts at Citibank. In fact, Citibank will offer higher rates on savings accounts and lower rates on many loans to people who have multiple accounts.
Ed Mierzwinski, a researcher with the U.S. Public Interest Research Group in Washington, was skeptical that consumers are actually better off with the fee shuffling.
Banks “may be lowering balances to avoid fees,” he said, “but they have also created new fees in addition to the monthly maintenance fees, so fees have gone up much more than you think they have.”
Mierzwinski said Citibank’s new plan could also discourage customers from shopping around for the best deals.
“I don’t want to encourage people to put all their accounts in one bank to get free checking fees, because you might get a better deal on a mortgage or a credit card somewhere else,” he said.
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Times staff writers Don Lee and Vanessa Hua contributed to this story.
