You may want to take a closer look at your bank’s fee schedule next year — particularly if you’re working with a smaller bank or lender.
Last week, The Wall Street Journal reported that small lenders, including regional banks and credit unions, are cautiously increasing the fees they charge on a variety of services in order to make up for lost revenue.
Why they’re doing it
For many banks and credit unions, the old ways of doing business aren’t working anymore.
Overall, bank profits have soared in recent years. However, banks’ revenue — the amount banks earn from the services they provide — has been slower to take off.
That’s partially due to the fact that interest rates are historically low these days, so banks aren’t making nearly as much money off loans. In addition, consumers are still reluctant to borrow heavily the way they did before the financial crisis. And businesses (which, in many cases, are still waiting for consumers to resume their spendthrift ways) are borrowing less overall as well.
Banks are also contending with increased federal regulations, which have taken a hefty bite out of their ability to siphon money from consumers. The Credit CARD Act of 2009, for example, has made it much harder for banks to raise customers’ interest rates, since they now have to give 45 days’ notice ahead of time. In addition, the CARD Act has severely crimped issuers’ ability to earn money from other charges they used to get away with, such as high over-limit and late fees. Other federal regulations — such as the rule requiring banks to let consumers opt out of overdraft protection — have also hurt banks’ ability to make money off their services.
According to the Wall Street Journal, smaller banks and lenders are having a particularly tough time making up for the lost revenue. “While large banks can push into more lucrative businesses, small lenders offer fewer products and services that offset low profit margins in their core business,” writes the Journal’s Robin Sidel.
What they might charge
It could be anything. Analysts say that banks and credit unions are looking far and wide for opportunities to add or increase fees. For example, according to a conversation I had recently with credit card industry consultant Robert Hammer, many lenders are analyzing every service they provide and are considering adding fees to services that have previously never been charged.
Banks are sensitive, however, to consumer backlash and are trying to find ways to increase fees without angering customers. (In 2011, a massive backlash ensued when a number of banks tried to charge their customers for the privilege of using their debit card; since then, the 2011 debit card fee debacle is often cited as a key reason why banks are so cautious about adding new fees.)
One strategy that’s emerging, according to the Wall Street Journal and other sources, is to charge more for services that are optional, such as ATM fees. In the Wall Street Journal, bank consultant Hank Israel commented: “There’s nothing like raising fees to get the ire of customers up.” But consumers are less likely to grouse about occasional fees, he said.
That’s why some small banks and credit unions are quietly hiking the amount they charge for extras, such as wire transfers, and raising the amount they charge when you make a mistake (such as when you bounce a check) rather than increase more obvious fees, such as checking account fees, reports the Wall Street Journal.
Big banks could also hike fees
Last month, the Wall Street Journal reported that Bank of America is considering introducing a checking account that doesn’t include overdraft protection for customers using an ATM or automatic bill payment.
That would limit the fees the bank could collect from customers who are nearly out of cash. However, in the same article, Robin Sidel reports that it’s not yet clear whether Bank of America plans to hike other checking account fees.
Last year, the Journal reported that Bank of America planned to introduce new checking account fees in 2012, but decided to postpone the plan until the end of 2013 or later. At the time, the Journal reported that several other big banks were also weighing new fees.
Already, bank fees at institutions large and small have increased significantly in recent years. According to Bankrate’s 2013 checking survey, for example, fewer than half of all banks (38 percent) offer free checking these days — down from 76 percent of banks in 2009. Meanwhile, ATM and overdraft fees have risen to record highs, according to Bankrate.
Read your bank’s most current fee schedule and make sure you know what fees will be charged before you take advantage of a new service. Just because you didn’t pay anything for a service before doesn’t mean a bank or credit union won’t charge you for it now.