As Banks Raise Fees, You Have Options

 So now we know what the big banks’ New Year’s resolution was: Keep the profits flowing from basic checking accounts.  As Banks Raise Fees, You Have OptionsEarlier this month, Bank of America announced its intent to test a number of different monthly fees for customers in some states, depending on the balance in their accounts or other relationships with the institution.

Right before the new year, meanwhile, JPMorgan Chase informed customers that under certain circumstances it would add monthly fees to many of the accounts it inherited from the now-deceased Washington Mutual.

This must feel awfully good for the veteran branch banking executives at Chase who looked stingy by comparison when WaMu ran ads all over the United States in the 1990s and 2000s telling consumers that free checking was a basic human right.

But Chase sure doesn’t sound happy. In a remarkable display of staying on message, it gave the same comment last week when The Wall Street Journal, CNN Money and the trade publication US Banker asked it to explain the reasoning for the new monthly fees.

“We don’t want to raise fees on our customers,” a company spokesman said. “But unfortunately, regulation is forcing us to do it. And as a result, some customers may end up unbanked.”

This statement is striking for a number of reasons, and the eye-popping earnings the bank announced on Friday don’t exactly make the company more worthy of sympathy. So I’ve spent the last week trying to figure out why I was so sure I did not believe it the instant I read it.

So let’s take it apart, shall we?

First of all, Chase does want to raise fees on customers. It’s not the only bank that wants to, and this is a fine thing if you are a shareholder. After all, any business ought to strive to produce a product or offer a service that is so good or necessary that customers will keep on using it even after a price increase.

What companies don’t want to do is raise fees so much that they attract the attention of regulators or people who do what I do for a living. Yet this is exactly what the banks have done in the last decade.

First, they raised overdraft fees until the fees were often many times higher than the amount of the actual transaction that pushed the account balance below zero. At the same time, the banks and their partners at Visa and MasterCard forced merchants to pay ever more for the privilege of accepting these cards.

Eventually, consumers and merchants howled loud enough in protest that we ended up with overdraft fee regulation. There is also a Federal Reserve proposal percolating that may allow merchants to pay big banks much less when they accept those banks’ debit cards.

And so we arrive at Part 2 of Chase’s statement: regulators are making the bank raise prices. Um, no. Regulators are making it lower prices, or at least make fees more transparent.

All actors in this play do have the ability to improvise. And some of the big banks relied heavily on overdraft fees to hit whatever internal goals they set for themselves in their branch banking units. Chase, for instance, estimated that the overdraft legislation would cost it about $700 million a year. It’s also worried sick about the possibility of earning much less from merchant fees.

Chase and similar banks have to make that up somehow. But it’s not regulators that are making them do so. Shareholders are.

So it’s no wonder that you generally don’t hear this sort of reasoning from, say, credit unions, which are subject to the same rules but don’t ultimately answer to the same master.

It is true that many more banks (and some credit unions, too, no doubt) will add monthly fees to their checking accounts, especially now that bigger institutions like Chase and Bank of America have given them cover.

But they won’t all do so. In fact, ING Direct, the online banking colossus, wasted no time last week in sending out gleeful notes reminding the world that it has always offered free checking in an interest-bearing account and will continue to do so.

Finally, Chase worries about those who will abandon its checking accounts in the wake of its price increase. And by fretting that those people will end up “unbanked,” it invokes the bogeyman — the rapacious check casher standing behind bulletproof glass in a grimy strip mall somewhere hard by the liquor store.

I sincerely doubt, however, that many former bank customers, having tasted the good life with a debit card and nice people on the phone who can help when the card isn’t working, will turn to check-cashing enterprises if they get fed up with monthly bank fees.

In fact, there is an entire niche of the card industry that has quietly grown up to serve them in recent years. Known variously as “prepaid” or “reloadable” cards, this is plastic that has a Visa or MasterCard logo and works a lot like a debit card. You can use it in a store or to buy something on Amazon.com or to reserve a rental car.

The difference is you don’t get the card at a bank. Instead, a company like Green Dot offers it online and sells it on a rack in various stores next to the gift card displays. In fact, Green Dot has about 3.3 million active accounts, many of which it has issued with Wal-Mart under the “Walmart MoneyCard” brand. Cardholders in the Green Dot system had loaded about $10 billion onto the cards as of Sept. 30, 2010.

This is not a free service, though it can come pretty close. With the Green Dot-branded card, it’s free to buy and activate the card online, though it can cost up to $4.95 if you do it in person (the Wal-Mart card pricing is slightly different).

Then, there’s the $5.95 monthly fee, but the company waives it if you make 30 purchases or more or load $1,000 or more onto it in a month. Also, there’s a $2.50 A.T.M. fee for people who don’t use machines that are part of Green Dot’s partner network. The money does not earn interest after consumers load it onto the card.

Direct deposit is possible, as is online bill paying, and the funds are insured by the F.D.I.C., which makes the product an awful lot like an online bank. There are no overdraft fees, though. Green Dot simply doesn’t put the transaction through if it determines that you don’t have enough money to cover it.

Green Dot takes in about $5 a month per cardholder in user fees. For consumers doing comparison shopping who don’t mind losing access to a teller and paper checks, that makes it competitive with old-fashioned banks that are now charging $8 and up for customers who don’t maintain minimum balance levels or have the right relationships with the bank.

Regulators could subject Green Dot to more scrutiny at some point. Meanwhile, the federal government is partnering with the company on a pilot program to deposit income tax refunds directly onto prepaid cards.

That said, prepaid card customers who don’t know any better can easily end up in the wrong hands. Last year, the Kardashian sisters, famous mostly for dating other famous people and humiliating themselves on television, invited further embarrassment when the Connecticut attorney general questioned the legality of a prepaid “kard” marketed with their name on it. In the face of criticism over high fees, they got themselves out of the deal.

So there is risk for consumers who turn their backs on the banks and their new fees. But most people won’t, and the banks know this. Changing checking accounts is a pain. Convenience matters, too, for people who need to deposit cash or have other reasons to lean heavily on a branch.

Those who do make the change can switch to a credit union or the ING Directs of the world. And as more people see Green Dot’s commercials, they’ll realize there are other alternatives that can be cheaper if they’re careful with the products.

Meanwhile, Green Dot’s founder and chief executive, Steve Streit, says that he’s reasonably certain that major banks are quietly planning to introduce their own reloadable prepaid cards.

Perhaps he’s a bit paranoid. But you can bet that if his company gets big enough, plenty of big banks will mimic his product. After all, once they do have similar cards, they’ll have a convenient place to dump checking account customers who are no longer profitable enough to make the shareholders happy.