Despite the fact that consumers pay more than $32 billion dollars annually in overdraft fees alone, a new report found that the amount of money banks make off customer-account fees declined for the first time in seven decades.
The Wall Street Journal reports that bank fees – once a sure-fire way for the institutions to make a quick buck – now account for far less of a bank’s profits than ever before.
The Federal Deposit Insurance Corp. reports that bank fees have declined nearly 21% in the past four years, from $41.1 billion in 2009 to $32.5 billion last year. That decline in fees has led banks to make a smaller profit off consumers. Fees now make up just 14.1% of bank’s noninterest income, down from the 17% average from 2000 to 2009.
Awareness Is The Key To Fewer Fees
So just what contributed to the first decline in banks’ fee profit since 1942? The WSJ reports it was a mixture of stricter federal regulations and consumers’ growing reliance on technology.
Banks’ largest fee bonanza – including the biggest money makers overdraft and bounced-check fees – ended back in 2010 when the Federal Reserve implemented new regulations regarding overdraft charges for debit cards. Under the new rules, banks could only charge the fees if consumers had explicitly opted-in for overdraft coverage.
The CFPB reported earlier this year that consumers who didn’t opt-in for the coverage paid just $35 in annual fees to banks. With more consumers aware of the overdraft programs and their ability to forgo them, the opt-in requirement likely significantly contributed to the decline in bank fee income.
Additionally, consumers’ reliance on all things technology played a part in banks’ fee income decline.
The popularity of mobile banking – and the ability to check accounts just about anywhere – means customers are more aware of their spending habits. A Fed survey released earlier this year that found the most common use for banking apps was to check account balances and tracking transactions.
Still Increasing The Bottom Line
While banks may be making less money off customer account fees, they aren’t exactly hurting.
The WSJ reports that bank earnings have risen significantly since the recession. In fact, U.S. banks reported a record net income of $40.3 billion last year.
The influx of income comes as banks have boosted new-loan volume, benefited from lower expenses for loan losses and charged customers for other services.
Bank of America has perhaps faced the largest decline when it comes to fees; the banks fee income went from a peak of $10.9 billion in 2008 to just $5.25 billion last year. One reason the fees declined so significantly is the company’s new policy not to allow customers to opt-in to overdraft programs on debit-card and certain ATM transactions.
Still, the bank has found other ways to raise the bottom line such as persuading customers to maintain more of their finances at the bank and its units.
Additionally, the bank has been able to cut call-center costs – officials estimate that two-thirds of the center’s calls were once related to questions about fees and balances – because with fewer overdrafters there are fewer questions.
Another example of banks finding profit in other areas of service comes from First Tennessee Bank in Memphis. The bank now charges for checking accounts and works to persuade customers to purchase stocks, mutual funds and other investment products.
Officials with the bank say revenue from wealth-management services is up about 25%, nearing $80 million a year in revenue.
Are Fewer Fees Hurting Customers?
But even with banks changing their focus away from fee income, some industry groups still defend the often costly fees, arguing that regulations are misguided and only work at the cost of consumers’ financial security.
“These rules hurt the consumer more than the banks,” said Richard Hunt, president and CEO of the Consumer Bankers Association in Washington, an industry lobbying group, tells the WSJ. “We’re always upfront with the consumer and we’re completely transparent. Because of this jobless recovery people live paycheck to paycheck and this can be a real service.”
Banks’ Fee Bonanza Dries Up [The Wall Street Journal]
by Ashlee Kieler via Consumerist
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