Free checking, RIP. It was nice while it lasted.
Reversing a trend that began in the mid-1990s, big banks are imposing new fees on their least-profitable customers — those who want just a bare-bones checking account.
Those who can't maintain fat balances, or who don't use other services that would make them more lucrative to a bank, probably will need to cough up about $100 a year if they want to stay put.
Blame the financial crisis. As part of the reforms adopted after the banking system's near-meltdown in 2008, the federal government has made it more difficult for banks to impose credit-card late fees, debit-card overdraft penalties and other charges.
Saying the new rules will cost them billions of dollars a year, the big banks plan to bring back maintenance fees on basic checking accounts.
The upshot: If you're not prepared to stockpile cash in a checking account, be prepared to pay a monthly fee or to take your money to a smaller bank.
"Wealthy consumers will be able to avoid these charges by maintaining high balances," said Jeremy T. Rosenblum, a Philadelphia lawyer and consumer finance specialist. "But for the poor and moderate-income people whose balances are lower, it's going to be much harder to avoid these fees."
Consumer advocates are largely on board, contending that modest checking fees are preferable to onerous and deceptive overdraft charges.
"A reasonable, upfront monthly fee is much better than abusive back-end overdraft fees or other junk fees that target those who can least afford them," said Lauren Saunders of the National Consumer Law Center.
Some customers are looking for cheaper alternatives.
Valerie Milan of Laguna Beach said Chase plans to start charging her $10 a month next week if she doesn't keep at least $1,500 in her checking account or make a deposit of $500 or more each month.
"I don't make enough to have that much in the bank all the time," Milan, 34, said as she left a Chase branch in Dana Point.
Milan will probably be able to get a better deal from smaller banks still offering free checking — but she'll have to give up access to a vast ATM network and the variety of services offered by bigger competitors.
Industry experts trace the widespread availability of free checking to 1994, when Washington Mutual, a fast-growing Seattle savings and loan angling for middle- and lower-income customers, introduced unconditionally free checking.
It wasn't until 2003, in part because the industry enjoyed a favorable configuration of interest rates, that big banks fully followed WaMu's example and embraced no-cost checking. Typically the only condition was a regular direct deposit.
Of course, free checking was never quite free — at least for the banks. Large institutions typically spend $300 to $350 a year to provide a checking account, including paying for branches, automated-teller machines, online account access and customer service by phone, according to industry consultant Michael Moebs of Lake Bluff, Ill.
Avoiding monthly charges now will take some work.
Consumers who "just sit on the sidelines and do nothing — and there are people who will do that — they're going to get stung badly by fees," Moebs said.
Bank of America, for example, plans to phase in checking fees over two years, first for new customers and then for the 57 million households it already does business with. It's testing reactions in three states to fees of $9 to $25 a month for consumers without big-enough balances or deposits.
BofA says customers can still steer clear of monthly fees by doing all their banking online or at ATMs. But the penalty for straying is stiff: Conduct just one routine transaction with a human teller and you'll get dinged $9 that month.
At Citibank, depositors who make fewer than five debit-card transactions a month already pay $8 a month for checking. Wells Fargo is charging $5 a month for new checking accounts, and its chief executive warned last month of more "costs that will be passed along to customers."
Chase is imposing fees next week on customers whose deposits and balances aren't big enough — $10 a month on the West Coast, WaMu's former stronghold, and $12 elsewhere. Chase spokesman Gary Kishner compared the cost to a couple of trips to Starbucks. He also said 93% of Social Security recipients could avoid the charge by having their monthly benefit electronically deposited.
Consumer advocates advise studying the fine print on your bank statement and other materials, seeing whether free checking bundled with other services suits your needs and calling your bank to object if you see a new charge you dislike.
"It's a pain, but if you do your homework you can avoid the fees," said Consumers Union policy analyst Suzanne Martindale. "And complain. A lot of these are pilot programs, where the banks are testing what their customers will tolerate."
Moebs predicts that the country's 29 largest consumer banks will drop free checking, causing an exodus of customers. By the end of next year, those banks will have only 33% of all checking accounts, down from 45% last year, he projects.
Smaller institutions, such as credit unions, community banks or small regional banks, can still offer free checking because they have lower expenses.
For example, Orange Community Bank, with branches in Orange, Anaheim and Huntington Beach, will open one free checking account per household after an initial $100 deposit but with no minimum balance required after that. Customers receive cash-machine cards immediately but must wait six months for a debit card usable for purchases.
Chatsworth-based Premier America Federal Credit Union, with six locations including Simi Valley, Valencia and Santa Monica, offers free checking and a free debit card to members who initially deposit at least $100 and open a savings account with a $5 deposit.
But it can be hard to give up the convenience of the many branches and ATMs offered by the big guys.
Before Jeff DeCoursey of Aliso Viejo lost his job as a waiter when restaurant chain Claim Jumper shut its Laguna Hills location Jan. 1, it would have been hard for him to deposit $500 at a time to avoid checking fees at Chase. Now it's impossible, he said.
"So until I'm back on my feet, I guess I'll pay the $10 a month," he said. "But I'm going to go to a credit union when I can."