news.cuna.org/articles/113655-curtail-free-checking-thats-a-curious-decision
Curtail free checking? That’s a curious decision

Curtail free checking? That’s a curious decision

Bank of America’s move is a gift to credit union marketers.

February 5, 2018

In light of the continued and rightful focus on the paycheck-to-paycheck demographic, Bank of America’s January move to curtail its free checking offers becomes even more curious.

To be fair, headlines claiming BOA eliminated free checking are overstated. Free checking remains available for students under age 24 and account holders with a monthly direct deposit of at least $250 (or $3,000 in aggregate for the year).

Regardless of the fine print, the optics are terrible—and gift-wrap a credit union marketing angle.

At the same time as moving these low-end consumers into a maintenance fee status, BOA took the opportunity to hike that monthly fee from $8.95 to $12.

The bank counters that these accounts were “upgraded” to “core checking” status and now have branch access (its previous eBanking product was a remote-only model).

But wait: Haven’t these customers already signaled that they didn’t see value in the $8.95 offer? So the bank’s response is to charge $12 for it?

Doubling down on the direct deposit requirement also seems out of step with well-publicized trends toward freelancing and the “gig economy.”

Anyone cobbling together a living from multiple sources—some of which may not repeat on a monthly basis—may not be in a position to establish direct deposits.

The $3,000 annual option eases this restriction, but seems unnecessarily complex. I’d love to see how BOA will implement it.

Press and social media reaction to BOA’s change has been predictably livid. Cornerstone Advisors took a contrarian stance, however, calling it a “stroke of genius.”

Analyst Ron Shevlin points out that fee-based account holders are more likely to refer new accounts, as well as to purchase additional services.

Fair enough, although the gaps don’t strike me as that stark. But his point also seems to confuse correlation with causation.

Do we believe cross-sell rates will improve merely by bumping accounts into paying status? Or is it more likely that we’ll simply run these accounts off?

And unless you buy into a “once struggling, always struggling” mindset, wouldn’t some subset of those accounts have gradually evolved into higher-balance status and a need for additional services?

Cornerstone also reminds that banks should not build free checking business cases on expected nonsufficient fund (NSF) fees. Agreed to an extent, but that’s a false choice.

No ethical financial institution should rely on models that induce NSFs, or treat them as a cash register. However, it’s a cold reality that low-balance accounts such as those in question do generate NSFs.

A single NSF every three months (and many such accounts incur several times that) generates as much revenue to offset costs as three months of maintenance fees.

Will maintenance fees be applied to cover NSFs? I didn’t think so. And if an account isn’t drawing NSFs, isn’t it precisely the type financial institutions should want to cultivate for a long-term relationship?

Encouraging attrition of low-balance accounts also greases a slippery slope to a spike in the unbanked rate—a path to added Consumer Financial Protection Bureau scrutiny.

I’ve said for some time that the elimination of monthly maintenance fees was among financial institutions’ greatest blunders.

Nonetheless, BOA’s approach is not the way to go about reinstituting them.

GLEN SARVADY is managing partner at 154 Advisors. Follow him on Twitter via @154Advisors. His views do not necessarily reflect those of Credit Union National Association.