By
Kenneth Long on January 10, 2011
.jpg.aspx?width=75&height=75)
The Federal Government proved once again that meddling in free markets often has unintended consequences. Largely to replace its share of the estimated $9.8 billion reduction in annual debit card interchange fees (CardHub.com), Bank of America checking account fees will be levied on all but its best and most profitable customers.
Bank of America is phasing in changes that will affect a large percentage of checking account holders. Arizona, Georgia and Massachusetts customers were chosen to lead the changes, which will likely be followed by other states prior to 2012.
Checking account fees will be based on one of four classifications of account holders:
- Essentials: The basic checking account will now cost $8.95 a month for most Essentials account holders. Essentials account fees will not be eligible for waivers.
- eBanking: Monthly fees of $9 will apply for customers that want electronic access to their accounts. Additional fees for printed statements or teller assistance could quickly price many customers out of an account entirely.
- Enhanced: Enhanced accounts will cost $15 a month. However, customers may qualify for fee waivers if they receive monthly direct deposits exceeding $2,000 or maintain a minimum account balance of $5,000 for the month.
- Premium: The upper echelon of clientele will likely utilize the Premium account. Most should not expect to pay the $25 monthly fee, since fee waivers are available for Bank of America mortgage holders or for those who maintain at least $20,000 in combined balances at the bank.
For consumer advocates, these changes hardly sit well. The poor and those living paycheck-to-paycheck will be hit the hardest by fees that could easily exceed $100 a year. Many are expected to close accounts rather than pay the new fees.
For Bank of America, that is an understood outcome of a new economic reality. No bank wants to lose customers. Yet, major banks can no longer subsidize unprofitable accounts by relying on the formerly lucrative debit card interchange fees to increase profits.
Indeed, the Dodd-Frank Wall Street Reform and Consumer Protection Act may curb many of the abuses that customers complained about from big banks. Specifically though it is the Durbin Amendment to the Act that may have had the biggest unintended consequences.
The Durbin Amendment drastically lowers the debit card interchange fees for the largest banks. Senator Durbin claimed the Amendment would lead to lower consumer prices for most goods and services, thereby benefitting the poor and working class the most. It remains to be seen if merchants will pass any of the savings down to customers. What is apparent though is it is causing a revolution in consumer banking that will result in millions of customers opting to become unbanked or moving on to smaller banks or credit unions willing to take on largely unprofitable accounts.
Bank of America is certainly not alone in making this decision.
Chase checking account fees will also become the standard unless you can qualify for an exemption. In fact, every bank with at least $10 billon in assets is expected to begin charging monthly service fees for checking accounts. Smaller banks will have to choose whether to rake in new clients by continuing to offer free checking or to follow suit and begin charging fees for checking accounts.