Big Bank Epiphany: Adding New Fees May Be Bad For Business

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Could 2013 be when big bank customers finally get some relief from the onslaught of fees they’ve weathered in recent years?

According to some bank industry analysts, the answer is a qualified yes. Fees aren’t going away entirely, and the experts say penalty fees in particular will continue to creep higher, but a new regulatory climate in Washington has put banks on notice that piling on costs is not the best way to do business.

“The whole landscape changed after the election,” says Ken Thomas, an independent bank consultant and economist. With Obama in the White House and celebrated Wall Street watchdog Elizabeth Warren in the Senate and likely within reach of a seat on the Senate Banking Committee, “regulators feel emboldened. They feel a new sense of purpose,” he says. “Banks want to do what they can to minimize complaints. They’re being a little more consumer sensitive than they were before.”

After last year’s debit card fee debacle, in which Bank of America had to back off plans to add a $5-per month fee for debit cards, banks are leery about provoking consumer ire by adding new fees, especially monthly maintenance fees that customers never had to pay before. Massive consumer backlash could prompt regulators to take a look at banks’ business practices, and no businesses want to trigger greater regulatory scrutiny.

A recent article in the Wall Street Journal noted that Bank of America, the second-biggest bank in the country, is backing off from checking account fees, saying it “has shelved plans for new fees that could have hit at least 10 million customers by the end of this year… The decision to hold off on new checking-account fees at least until late next year comes amid a sweeping review of the bank’s retail-banking business.”

(MORE: Get Ready for Bank-Fee Whack-a-Mole)

Does this mean that fees will disappear, or at least mostly remain as is? Not necessarily. The Journal says that BofA is still continuing tests in three states of monthly account fees that range from $6 to $25.

For the most part, however, big banks seem to be shying away from adding new fees, and are choosing to expand existing fees instead. “Looking across all banks, and not just the big banks, there are continuing revenue pressures to increase fees because the Fed had promised to hold interest rates quite low for at least next two or three years,” says banking consultant Bert Ely.

“In fairness to the banks, this is a tough business problem,” says Dennis Moroney, research director at CEB TowerGroup. “Banks with large debit card portfolios are struggling to generate profits.”

“But in my opinion,” says Moroney, “it requires a more creative solution than higher fees.”

Without some creativity and innovative revenue-generating strategies, customer accounts can wind up being money losers for banks. In 2010, the American Bankers Association estimated that it costs a bank $250 to $300 annually to maintain a customer’s checking account.

(MORE: They’re Baaack: Americans Paid $31.6 Billion in Overdraft Fees in 2011 — and the CFPB Ain’t Happy)

According to the Journal, Bank of America is trying to get lower-balance customers to add direct deposit or use other bank products like loans. It’s also hoping new high-tech tools like mobile banking will help cut costs. “[CEO Brian] Moynihan believes if the bank can reduce costs through mobile, it can avoid charging fees for things like overdrawing an account,” the paper notes.

This doesn’t mean overdraft fees are going away anytime soon, though. Overdraft and other existing penalty fees are the area where banks still feel like they have some wiggle room, according to Thomas. “That’s where we’ll see the movement. It’ll be a silent fee creep on the existing fees as opposed to introducing new fees,” he says.

Other fees likely to go up are charges that should also be very familiar to consumers, such as the costs a user incurs to withdraw cash from an out-of-network ATM. The idea is that raising existing –and avoidable — fees is more palatable to bank customers than adding new fees for services we’ve come to expect for free.

(MORE: Why So Many Americans Don’t Have Bank Accounts)

One other piece of good news about fees is that the Consumer Financial Protection Bureau’s push for simplified disclosure documents in the mortgage industry is likely to be something it expands to other areas of consumer banking, Thomas predicts. “The fine print’s going to be much smoother, much easier to read,” he says. The agency already began investigating banks’ overdraft fee practices back in February. “This is all good for consumers,” Thomas says.

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