The Wall Street Journal-20080126-Bruised Banks Salve Their Pain With More Fees for Consumers- Overdraft- ATM Charges Climb As Lenders Scrape for Revenue
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Bruised Banks Salve Their Pain With More Fees for Consumers; Overdraft, ATM Charges Climb As Lenders Scrape for Revenue
Banks are being pummeled by bad loans and the weakening economy. Now they are passing on some of the pain to consumers.
Across the country, banks have begun jacking up fees charged for using automated teller machines and dipping account balances into the red, while also imposing fees on a wider range of transactions.
Earlier this month, for example, J.P. Morgan Chase & Co. started charging customers of other banks $3 nearly every time they use one of the bank's 9,100 ATMs. Before that, the fee ranged from $1.50 to $2.
Nuisance fees have long been a sore point for bank customers, consistently rising much faster than the U.S. inflation rate. Five years ago, out-of-network ATM fees -- imposed on customers who make deposits or withdrawals at a machine that isn't owned by their bank -- averaged slightly more than $1 a transaction, according to a Federal Reserve survey. The average now is about $1.78, says Greg McBride, a financial-services analyst at Bankrate.com in North Palm Beach, Fla.
With the U.S. banking industry reeling from the housing slump that is forcing it to get tougher on borrowers and sock away billions of dollars toward existing loans that likely won't be repaid, banks are ravenous for more fee income. Unless there is an unexpectedly fast rebound from the current woes, additional fee increases are on the way, analysts predict.
"If you need to hit your target, one of the easiest ways to do it is to raise your fees," says Keith Horowitz, a banking analyst at Citigroup Inc. "It falls straight to the bottom line."
Tony Hayes, a Boston-based director at financial-services consulting firm Oliver Wyman, says there "are many more conversations going on within banks" about increasing ATM fees. "In an environment where rates are being squeezed, the obvious place to look is in terms of fee income."
Bankers insist there is no connection between recent fee increases and the problems cascading through the industry. Officials at several banks that increased ATM charges recently say they merely want to recoup the costs of erecting and operating sprawling networks of machines that many consumers take for granted. There are about 400,000 ATMs in the U.S., up from 139,000 in 1996, according to Oliver Wyman.
J.P. Morgan says ATMs are a convenience for its customers. "If you're not a customer, you have to pay for that convenience," says spokeswoman Christine Holevas. The New York bank's new $3 fee on noncustomers doesn't apply to about 250 ATMs in drugstore chain Duane Reade Inc., where the charge is only 99 cents.
Anat Bird, who runs SCB Forums, a Granite Bay, Calif., advisory group for banking executives, says most banks are comfortable jacking up ATM fees because they see them as powerful leverage with users. "It gives them an incentive to become a customer," she says.
Bank of America Corp., the country's largest bank in stock-market value, pioneered the $3 fee in August. The Charlotte, N.C., company has nearly 19,000 ATMs. Other big banks followed, with Huntington Bancshares Inc., Columbus, Ohio, increasing noncustomer ATM fees to $2.50 from $2 at most of its 1,400 ATMs, spokeswoman Jeri Grier says. Wachovia Corp. has fattened its surcharges at 200 of its 5,100 ATMs to as much as $3, according to Liz Costa, spokeswoman for the Charlotte, N.C., bank. Wachovia hasn't decided whether to roll out higher fees throughout the U.S.
Some banks also are making their own customers pay more to use ATMs owned by other banks. Those fees average about $1.25, according to Bankrate.com. Banks generate about $4 billion a year in revenue from the fees, with an additional $6 billion from noncustomers who use their ATMs, Mr. Hayes estimates.
Also rising are penalties for having insufficient funds in an account, which can be caused by bouncing a check or making a debit- card purchase that exceeds an account balance. Last fall, regional bank First Horizon National Corp. increased its NSF fee, banking- industry shorthand for "not sufficient funds," to $35 from $32. "We're always looking for new sources of revenue," says Mike McWhortor, a spokesman for the Memphis, Tenn., bank.
Mr. Horowitz, the Citigroup analyst, estimates that insufficient- funds fees rake in $30 billion to $40 billion a year. That is equivalent to as much as 70% of the total fee income U.S. banks get from consumer businesses.
As the mortgage turmoil spills into credit cards, card-related fees may soon start climbing, too. Analysts are on the lookout for the first card issuer that is willing to breach the longstanding $39 line in the sand on late-payment fees.
Even though banks are hungry for revenue, few are likely to abandon the widespread practice of free checking accounts -- at least for customers with healthy balances -- or low-cost online banking. That is because those products are fiercely competitive.
And there is a limit to how high fees can go before frustrated bank customers take their money and run. "It becomes too much for the consumer," Mr. Horowitz says. Few banks would dare push their insufficient-funds fees above the mid-$30 range.
Others aren't so sure. "That's what they said a couple years ago about ATM fees," says Ed Mierzwinski, the consumer program director at the U.S. Public Interest Research Group in Washington, which has lobbied against bank fees.
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Robin Sidel contributed to this article.
