In late 2008, the U.S. economy experienced a sharp decline. Much of the American public placed the blame for this “Great Recession” on large financial conglomerates, as the collapse of Bear Stearns, Lehman Brothers, and others triggered a bailout of “too big to fail” institutions.
In response to the events, the U.S. government passed the Dodd-Frank Wall Street Reform & Consumer Protection Act to better regulate the financial industry and protect American taxpayers from harmful banking practices. The bill was signed into law on July 21, 2010.
Dodd-Frank in a nutshell
Dodd-Frank signaled to U.S. banks that they would face increased regulations and restrictions on certain fees, among other things. The Durbin Amendment, for example, limited the fees banks can collect from merchants for debit card swipes.
In addition to Dodd-Frank reforms, the Federal Reserve initiated a rule on July 1, 2010 which removed bank’s ability to automatically enroll customers in costly and deceiving overdraft coverage programs.
Banks, seeking new ways to make up for these increased costs and lost revenues, began taking actions to extract additional fees from their customers. In particular, they seemed to be targeting those customers with lower deposits and investments. Such customers with balances under $100,000 are, in the words of JP Morgan Chase CEO Jamie Dimon, “no longer profitable,” in most cases.
How Dodd-Frank impacted checking accounts – step by step
- In 2010-2011, big banks began by ending traditional free checking accounts. Customers who previously didn’t pay monthly service fees now had to meet minimum balance or usage requirements to avoid regular charges. Over the 4 largest U.S. commercial banks, this new fee averaged about $7.25 per month, or $87 per year.
- In 2011 and 2012, banks raised monthly fees. The average yearly cost to big bank checking customers increases to over $100.
- Now in 2012, with even the most basic checking accounts exhausted by monthly fees, many banks are attempting to scrape revenue from other sources.
The most notorious of these may have been Bank of America’s announcement circa September 2011 of a proposed $5 monthly fee for debit card usage. CEO Brian Moynihan responded to the public outcries against this new fee by emphasizing that his company “has a right to make a profit.” Other banks, like Wells Fargo and Suntrust began testing this same fee.
Bank of America decided to drop their planned fee not two months later, after many of their competitors, including those who had been testing the fee themselves, decided against it.
Other changes directly affecting bank customers include raising fees for things like overdrafts and out-of-network ATM withdrawals. In some cases, banks are also cutting costs by closing branches and reducing available ATMs.
Bank of America is again leading the charge in this area. The bank reduced their number of ATMs in service by almost 9% over the past year, among other branch closings and job reductions. Moynihan’s comment: “It’s going to be a smaller platform…We have 42 million retail customers; many of those don’t contribute or overcome their cost-to-serve.”
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