Today, U.S. Senator Charles E. Schumer sounded the alarm about a wave of large and medium-sized banks planning an abrupt end to free checking accounts and urged the Federal Reserve Board to police whether these banks are providing sufficient notice to the millions of customers who stand to be nickel-and-dimed for a service that has long been provided for free.
In a letter to Fed Chairman Ben Bernanke, Schumer said the changes are coming too fast for most affected customers to even realize the change in policy until they receive their monthly statements. He called on the agency to ensure that banks are allowing customers enough time and notice to understand and prepare for the new fees—and possibly even switch financial institutions if they wish.
“This new trend across the banking industry will really be a punch to the gut of customers who rely on free checking accounts. This is a radical departure from what consumers are used to and it is coming too fast for them to even realize what hit them. Before banks impose new fees on something that has been free for years, they should at least give customers enough time and notice to get ready or even change banks if they want to,” Schumer said.
Starting July 1, Wells Fargo, one of the nation’s largest banks, will stop offering free checking accounts to new customers and replace them with so-called “value” checking accounts that assess “maintenance fees” if account holders don’t maintain a minimum balance and make direct deposits on a regular basis. Also this summer, North Carolina-based Bank of America is experimenting with a move toward a similar system. Many banks, such as Minnesota-based TCF Financial Corp., already made the switch away from free checking accounts earlier this year. Still others are expected to follow suit.
The timing of banks’ move to phase out free checking is not coincidental. Beginning next month, banks will be required to seek customers’ permission before they can enroll them in a program that assesses massive “overdraft” fees when customers overdraw their account. The Federal Reserve imposed curbs on such programs, which were lucrative for banks but took many consumers by surprise, after Schumer and other lawmakers threatened legislation.
The new rules have left banks in search of new revenue streams. But Schumer said that consumers should not shoulder the burden of banks’ endless appetite for greater and greater profits.
A copy of Schumer’s letter to the Federal Reserve appears below.
June 27, 2010
Honorable Ben Bernanke
Chairman, Federal Reserve Board
20th Street and Constitution Avenue, NW
Washington, DC 20551
Dear Chairman Bernanke
I write to alert you to a startling trend among financial institutions that are threatening to end complimentary services to their customers in order to find new revenue streams as banks prepare to meet additional regulations that go into effect on July 1 to curb exorbitant overdraft fees to consumers.
I am aware that many financial institutions are about to make changes that would subject customers to maintenance fees on their formerly free checking accounts unless they are able to meet specific requirements that range from maintaining a minimum balance set by the institution, making a certain number of deposits or transactions per month, and so forth. It is essential that the Federal Reserve make sure that financial institutions provide clear and transparent guidance to consumers as these additional fees are implemented so that consumers are not penalized during this transition.
I urge you to pay special attention to financial institutions as they implement these adjustments to ensure that customers know exactly when the terms of their checking accounts are changing and what types of fees will be assessed in the future. Given the current economy, it is imperative that the Federal Reserve work to prevent banks from imposing additional, hidden fees upon consumers who are struggling to pay their bills.
Thank you for consideration of this request. Feel free to contact members of my staff at your convenience if you have any additional questions.
Charles E. Schumer
United States Senator