Customers Play Catch-up with Changing Bank Fees

Over the past year, federal regulators have issued a passel of mandates to banks designed to curb abusive practices — rules that are expected to slice billions of dollars from their profits. In response, many banks, particularly large, national institutions, have responded with a flurry of new and increased retail fees. The changes have annoyed customers, but also present an opportunity for smaller, often more nimble banks to pick up business by keeping their own fees low.
When the federal government started more closely regulating the way banks do business — reining in abusive practices such as multiple overdraft fees in a single day and raised interest rates following late credit-card payments — the affected banks began looking for ways to recoup the lost revenue.
The result, in many cases, has been an onslaught of new and increased fees on checking, ATM use, debit-card transactions, and fraud alerts, to name a few. Customers have noticed — and they’re not happy, said John Heaps, president of Florence Savings Bank. And that presents the region’s community banks with a chance to tell a different story.
“The bigger banks — the Bank of Americas and Citizens of the world — are paying for the sins of the past, and have to find ways to generate income — and as a result are finding ways to charge customers. Free checking is going away,” said Heaps, whose bank still offers three free-checking options for retail customers and one on the business side.
He said customers appreciate such amenities, which are among the reasons many customers have left the megabanks after being nickel and dimed — or, more accurately, fin and sawbucked — one too many times.
“We are seeing a significant number of customers saying, ‘we’re fed up with the changes,’ and these fees are the straw that broke the camel’s back,” Heaps said. “We’re seeing people leaving big banks saying, ‘this is the end. I’m done.’”
As a result, smaller banks are beginning to market around policies of low fees and no hidden charges.
“Our viewpoint is really straightforward and simple: we have a free checking account — that means totally free,” for customers who use direct deposit or keep at least $1,000 in their combined checking and savings accounts, said Trent Taylor, chief operation officer and chief credit officer of NUVO Bank.
NUVO, he explained, also charges no ATM fees; quite simply, it has none of its own ATMs, and refunds any fees charged to its customers by other banks. “That’s a nice plus,” he said. “We don’t have any ATMs, so basically the ATM network out there is all ours.”
Bank President Jeffrey Sattler said such offerings were part of the institution’s philosophy from its launch three years ago. “There’s no bait and switch, no minimum requirements in the fine print. It’s simple, local banking with no gimmicks. That’s important.”
United Bank tries to communicate the same message, said Keith Harvey, executive vice president. But that’s nothing new, he added, noting that United has long had a customer-friendly fee policy, including free checking, overdraft charges that apply only to paper checks and never debit transactions, and no ATM charges for customers.
“We don’t need to change the way we promote our overdraft programs for debit cards because they’re not going to get that fee,” said Dena Hall, the bank’s senior vice president of marketing and community relations. “Our philosophy is that, when you come here, everything is free. We want to make it easy for people to bank with us.”
For this issue, BusinessWest examines how banks have seized upon a year of public discontent with bank fees by turning the issue into a marketing opportunity — and why a message of low (or at least unchanged) fees is finding fertile soil.

Future Shock, Not Sticker Shock
Taylor said one of NUVO’s founding principles was investing in the latest technology to enable customers to bank online, and saving the money that would otherwise be spent on an extensive network of brick-and-mortar branches.
As a result, “we can grow to probably triple the size we are today without adding staff,” he explained. “A lot of bigger banks, while they have a lot of current technology, they also have a lot of older technology, and it requires more people to manage that. When we built this bank, we wanted to get the best technology available and utilize it to its fullest capacity so we can drive costs down.”
Others banks are catching on to this low-overhead strategy. Gregg McBride, a financial analyst for BankRate.com, a rate-comparison site, said more than 40 institutions offer ‘rewards checking’ — essentially a free account with strings, including mandatory direct deposit, at least 10 debit-card swipes a month, and online bill pay, actions that many customers already take. The return is an interest rate that rivals CD rates.
“That’s the direction these consumers are heading,” said Sattler. “Because of technology, they’re doing business on their BlackBerry; they’re looking at balances, moving money, someday they might take a picture of a check and deposit it into their account. We give them convenience, but still have the local touch, a local phone call if they have a question.”
The lack of ATMs is another part of that philosophy — in short, it’s cheaper to refund customers’ charges from foreign ATMs than maintaining its own.
“We can keep our fees down by not having ATMs; they’re a huge cost, just to buy them, have them installed someplace, and then service them, including the armored-car service to maintain the cash,” Taylor said. “We don’t have those, so it keeps our costs down.”
And NUVO has no plans to raise any fees or introduce new ones, he added — but it will actively seek to improve its high-tech framework.
“We will continue to look for where technology is going to meet the demands of the consumer,” Sattler said. “You can’t bury your head in the sand and stay where you are. Customers, both businesses and consumers, are accepting technology more and more; they’re looking to technology for convenience, to save them time.”

Personal Touch
Kathy Kristof, who writes about personal finance for the Los Angeles Times, recently noted that the changing landscape is increasingly leading customers to put more accounts under one roof.
“In many cases, banks will look at your entire ‘relationship’ — mortgage, checking, savings and credit cards — to determine whether to charge a fee for any given service,” she writes. “And it’s common to aggregate the deposits you have in savings, checking, and certificates of deposit to figure whether you meet minimum-balance requirements.”
United takes it a step further, Hall said. Its ‘personal banker’ concept means that, every morning, someone looks over each of the previous day’s overdrafts and makes a decision whether or not to charge a fee based on the client’s balances, longevity with the bank, and other considerations. “It’s not a computer in the back office making a decision without any consideration; if it’s the first time this has happened, or it’s really unusual, we’re likely to waive the fee.”
In general, said the bank executives who spoke with BusinessWest, smaller banks place more value on each customer than megabanks do, especially when those customers wind up staying with the institution for services beyond checking and savings, such as loans, investments, and insurance.
“Because of the focus we have on our core and the good job we’ve done spreading the word, we open a lot of checking accounts,” Harvey said. “We don’t find ourselves in a position of having to regularly impose new fees on clients because our income is already pretty healthy — because of our focus on generating core accounts.”
NUVO’s Taylor agreed that cultivating customer relationships is more valuable to smaller banks than seeking every last dollar of fee income.
“A lot of the biggest banks over the years built a lot of their revenue stream on fee income,” he said. “We have not. Certainly there are little fees, but ours wasn’t built all on external fee income. Instead, we looked to a good deposit base, good loan rates, and keeping our overhead down so we didn’t have to gouge the customer with all these ancillary fees just to run the bank.”
Hall said United subscribes to a service that keeps it up to date on what other banks in the market are charging, and tries to set its own fee schedule to compare favorably — and, indeed, “it’s been a long time since we raised any fees,” she said. In fact, the only charge expected to rise in the new year is the convenience fee United charges to non-customers using its ATMs.
“Generally speaking,” she told BusinessWest, if you look at us compared to our peers, our fees are lower and more competitive, and they’re attractive to customers.”

Bottom Line
United extends its low-fee policies in other, innovative ways, such as remote deposit capture. “We provide the gear to customers to remotely deposit checks to us at no charge,” Hall said. “That’s another point of differentiation for us. Personal banking and service are important, but fee policies are another key piece.”
Being able to provide such services is one more benefit of avoiding the lending mistakes that crippled the nation’s largest institutions two years ago — and continue to shake the financial-services industry today.
“They’re looking at significant loss of income,” said Harvey of the regulatory changes those banks are dealing with — often by raising fees. “We never made money that way, so we’re not forgoing any income today.”

Joseph Bednar can be reached at
bednar@businesswest.com