Bank Fees: Customers seeing charges steadily rise
From: "Bank Fees: Customers seeing charges steadily rise. Banks earning less from interest look elsewhere for revenue", Clarionledger.com, LaRaye Brown, 1/26/10
Paying attention to bank fees? They may be on the rise.
With loan volumes down and interest rates low, banks are earning less money from interest charged on loans and are looking elsewhere to make up for it.
Those who watch the banking industry say fees - on both the credit card and banking sides - will continue to increase, generating additional revenue to help banks balance their bottom lines.
Existing fees could increase, new ones could appear and old ones could reappear.
"The thing that we're hearing ... is that we as consumers have been the beneficiary of free checking," said Adam Barkstrom, a certified financial analyst and managing director with Birmingham-based Sterne Agee. "Maybe we as consumers will have to start paying a fee for checking accounts. Historically, that's the way it was."
Barkstrom says its too early to tell how fees may be affected, but with pressure from the government to limit some fees, shareholders will expect banks to make up any potential income losses.
"The difference between the money that customers pay us on loans and the amount of (interest) we have to pay on deposits ... that spread over the last few years has become tight, meaning there is less interest income left over," Michael Lindsey, senior vice president of BancorpSouth's retail banking division, said.
Lower interest rates mean banks are earning less money. With layoffs and worries about the economy, fewer loans are being sought or issued.
Those who watch the industry say this isn't new.
"Fees have been going up year in, year out for the last decade, and that's certainly not going to change in 2010," said Greg McBride, senior financial analyst with Bankrate.com. "(They have) been going up for the last 10 to 15 years as banks diversify their earnings stream to place greater emphasis on noninterest income."
Moebs Services, a Chicago-area economic research firm, last year predicted banks would earn $38.5 billion on overdraft fees during 2009. Moebs has tweaked that prediction to an estimated $38.9 billion when final 2009 numbers are tallied in a few weeks. That's up from $36.7 billion in overdraft fees in 2008.
"We felt there would be some reduction on price," Moebs CEO and economist Mike Moebs said. "And there was, but not anywhere near as much as we thought there would be."
Given the decline in spending, the number of overdrafts declined. While credit unions showed a slight dip in the fee, banks actually increased their overdraft fees - going from the $25 to $27 range to $29, Moebs said.
Even as banks in the area acknowledge the need for revenue, many say they're not planning fee increases.
"We just really haven't talked about it," Billy Brunt, Jackson regional president of Bank First, said. "We are looking at every source of income that we can find at this point. Loan demand is down, so we have to keep the fees we're already earning."
Trustmark also hasn't had any recent fee increases for things such as noncustomer ATM fees and overdrafts, spokeswoman Melanie Morgan said.
Government pressure to reduce fees is there and clearly expressed in the Credit Card Accountability, Responsibility and Disclosure Act, elements of which go into effect Feb. 22.
Banks already are responding. Barkstrom recounted reports of banks limiting the number of overdrafts that can be charged in one day, for example.
BancorpSouth eliminated a fee to use its automated payment system, although it still charges for expedited payments, Lindsey said.
The CARD Act provides some consumer protections, but it's not catch all, experts say. Consumers still will need to be mindful of fees.
"The overall landscape is going to be different in the sense that reward programs will be watered down, credit limits won't be as generous and interest rates on credit cards will be higher," McBride said.
Between January 2009 and last week, the average variable interest rate on credit cards has risen from 10.86 percent to 11.98 percent, Bankrate research shows.
Not all fees will be directly charged to consumers. In its fourth-quarter earnings report it released last week, BancorpSouth showed a nearly 61 percent increase in noninterest revenue when compared with the previous quarter. The $64.5 million in noninterest revenue, included a $1.6 million increase in mortgage servicing rights. Like many banks, BancorpSouth makes mortgage loans, but it then packages and sells those loans.
Barkstrom said income from mortgage servicing rights can be volatile and varies quarterly.
Written By: rnybeck
Date Posted: 4/1/2010
Number of Views: 2373