Who doesn’t feel a twinge of nostalgia now that Bank of America (Stock Quote: BAC) has announced it will shut down its free checking option for good? That nostalgia will stick around too, since most big banks will be doing the same thing soon.
Bank of America has been planning to phase out its free checking program since last summer. That’s when Congress was voting on financial reform, and just after the major components of the Credit Card Reform Act (CARD) went into effect.
Both laws set strict standards on what kinds of fees banks can charge on things like credit cards and checking account overdrafts. And according to Sandler O'Neill, 12% of Bank of America's revenue comes directly from overdraft fees, so now more than ever, the bank is feeling the pinch. In the 3rd quarter, it recorded a $10.4 billion charge to its earnings, and bank executives were quick to cite the fee limits as a major contributor, according to the Associated Press.
Consequently, banks need ways to recoup some of those fees, and eliminating free checking is at the top of the list.
The die was cast in August, when the banking giant announced its new eBanking service, which offered free online checking account services like deposits, withdrawals and online statements. Bank of America made a key distinction before the rollout – customers could keep their old-fashioned, paper-based checking accounts, but they’d have to pay $8.95 per month for the privilege.
"Bank of America is listening to its customers and developing innovative products and services that respond to their changing needs and preferences," said Susan Faulkner, Deposit and Card Products executive. "eBanking is only one of a number of new and forthcoming solutions that will allow Bank of America customers to choose how they want to bank with us, as well as how they want to pay for the service and products we provide."
Note the line “as well as how they want to pay for their service and products we provide’ – that’s the bottom line with Bank of America, and most likely many other big banks going forward. If you want the classic personal checking account, complete with paper checks and paper statements, you’re going to pay a price.
Bank of America says it’s bent on having its 29 million customers use its online services. So far, five million are already doing so.