The Curious Case of Bank Fees

Is the mass exodus of bank customers an intentional strategy?

May 10, 2013

The topic of fees is a volatile one. Consumers hate fees—intensely. And the media loves to cover consumers screaming about them. It’s no wonder credit unions tread lightly down this road.

It’s true that credit union fees compare favorably with bank fees. In some cases, the difference between the two is truly remarkable. Take free checking for example—82% of credit unions offered free checking in 2012 compared with only 39% of banks, according to Bankrate’s 2012 Checking Survey.

There’s also a striking contrast between credit unions and banks in terms of average minimum balances required to avoid fees on interest-bearing checking accounts. The credit union average of $1,010 is $5,000 lower than the bank average of $6,118, Bankrate reports.

Conventional wisdom says the presence of a low-fee competitor (such as a credit union) in the same market as a bank helps keep bank fees from rising to the stratosphere. That makes sense, but banks seem to be flying in the face of that wisdom.

Banks appear to be raising fees and eliminating free products and services with little regard for what their low-fee competitors are offering. Three-quarters of banks offered free checking four years ago. Now, only 39% do.

Even with competitive pressure to the contrary, banks have been increasing fees on consumer accounts at a brisk pace. The mass exodus of millions of consumers from banks on Bank Transfer Day and during related events has not deterred banks in their quest for higher profits.

Banks’ bottom lines are clearly on the mend. They earned $34.5 billion in the second quarter of 2012—a $5.9 billion (20.7%) increase compared with second quarter 2011, according to the Federal Deposit Insurance Corp. And banks’ 0.99% average return on assets (ROA) in the second quarter is the third-highest quarterly ROA for the banking industry since 2007.

This situation begs a couple questions: Are large, national banks at all concerned about the millions of customers who took their business elsewhere during the past few years? If not, is this part of an intentional plan to push marginally profitable customers out the door to credit unions and community banks?

We may never know. If it’s an intentional strategy, it appears to be working if the bottom line is any indicator. Perhaps it’s some type of natural market correction that’s moving these consumers to their rightful financial homes—to credit unions.

CUs maintain fee advantage” discusses these issues in greater depth and summarizes the results of the new CUNA 2013-2014 Fees Report. It also cautions credit unions to make sure their fees are above reproach in light of heightened congressional and regulatory scrutiny.

STEVE RODGERS is editor of Credit Union Magazine.