Legal Commentary

B of A Eliminates Free Checking for Lower-Income Customers

By Todd Zywicki

In today?s WaPo, ?Bank of America to Change Fees for Checking Accounts, Cites Increased Regulation?:

Bank of America will begin offering greater rewards to its most affluent and active banking customers but reduce services for its most basic users, executives said Wednesday, as the financial industry seeks to make up for lower revenues amid heightened federal regulations.

Under the new program, consumers who carry low account balances would be subject to a $9 monthly maintenance fee. Meanwhile, those with at least $50,000 in deposits and investments would receive priority customer service and higher interest rates on their savings. The new accounts will be tested in Arizona, Georgia and Massachusetts this month and are slated to be rolled out nationwide late this year or early next.

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Bank of America is not the only bank to alter its fee structure in the past year, but as the nation?s largest bank by deposits its action carries particular weight.Wells Fargo replaced its free checking accounts over the summer with Value Checking, which requires a monthly deposit of $250 or a minimum balance of $1,500 to avoid a $5 monthly fee. In the Washington area, Wachovia branches will continue to offer free checking accounts until they are taken over later this year by Wells Fargo, which acquired Wachovia in 2008.

Chase will require new customers to make a monthly direct deposit of $500 or keep a daily balance of $1,500 to avoid the $12 fee on its Total Checking accounts starting next month. Previously, consumers had only to use their debit card at least five times each month to avoid the fee.

?We don?t want to raise fees for our customers, but unfortunately regulation is forcing us to do it,? a Chase spokesman said. ?As a result, some customers may end up unbanked.?

Banks have been scrambling to find new sources of revenue after a wave of legislation that brought changes to their consumer products. The new rules limit interest rate increases on credit cards, banned manyoverdraft charges and reduced the amount of money banks receive each time a debit card is swiped. The last move alone could cost Bank of America $2.3 billion a year in revenue, the company has said.

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Customers who maintain daily balances of at least $2,000 or who use another product, such as a Bank of America credit card or mortgage, would avoid monthly fees ranging from $15 to $25. And those with the highest account balances become eligible for greater rewards and services. Customers can also choose to pay for services not included in their accounts, such as mobile payments.

According to a recent study by Bankrate.com, the percentage of financial institutions offering free checking accounts dropped to 65 percent in 2010 from 76 percent the previous year. The minimum balance to avoid those fees on non-interest checking accounts rose 34 percent to $249.50.

Full post as published by The Volokh Conspiracy on January 06, 2011 (boomark / email).