Watch Those Fees!

From various accounts, the nation's financial institutions will be bombarding customers with new fees and products in 2010 as they try to replace more than $50 billion in revenue wiped out by new rules that clamp down on certain business practices.

So far, the changes are mostly concentrated in checking accounts and credit cards. In addition to attaching new fees to old products, financial institutions are introducing new types of accounts that they hope will bring in new customers and reduce their acquisition costs.

For plastic, the new rules go into effect in February as part of the Credit Card Act of 2009. The rules will limit some interest-rate increases, require more disclosure to customers and prohibit financial institutions from raising interest rates on current balances unless a customer is at least 60 days behind in a payment.

Credit-card companies already have been racing to slip new fees and practices into customer contracts ahead of the law. Issuers are closing accounts, switching cards with fixed interest rates to variable rates and introducing cards that have an annual fee.

In addition to the credit-card rules, the government will crack down next year on ways financial institutions charge overdraft fees, which are assessed when a customer overdraws an account.

New Federal Reserve rules will require financial institutions to receive customer consent before they can be charged such a fee. That is a significant change from the current practice, in which financial institutions typically honor withdrawals and then levy a fee if the account is overdrawn. The Fed estimates that financial institutions generate $25 billion to $38 billion a year in overdraft fees.

One recent survey by Chicago's Bank Administration Institute found that 43% of retail-bank executives feel that consumer trust in financial institutions has eroded in the past six months. Call me old-fashion, but it seems to me the way to get the love back is NOT to ramp up the fees. But to be fair, how else are the financial institutions supposed to make money? Nobody holds onto their loan portfolios anymore so it is what it is (to quote a certain New England football coach)

To make up for lost overdraft revenue, financial institutions are promoting greater use of debit cards, which can be more profitable for financial institutions than processing paper checks, and new types of checking accounts. Other financial institutions are expected to eliminate free checking completely, raise fees on safe-deposit boxes and charge customers more for issuing a stop-payment on a check.

It’s always about the dollars……