New financial regulations may end era of free checking

By Alistair Barr, MarketWatch

SAN FRANCISCO (MarketWatch) -- The sweeping financial regulation signed into law Wednesday by President Barack Obama may have a direct and visible effect on millions of bank account holders in the U.S.

The new rules may end the era of free checking accounts.

Wells Fargo, which reported more than $3 billion in quarterly profit Wednesday, scrapped free checking for new customers, imposing a $5 monthly fee for new basic accounts starting this month.

Bank of America is launching a new account in August that will be free if customers bank online and use ATMs, but will cost $8.95 a month if they want a paper statement and use a teller for routine transactions.

More big banks will likely follow the lead of Wells and Bank of America because the financial reforms limit the amount of fees they can charge and the way they levy them.

"That's going to be pretty common across the board. Lots of big banks are starting to do that," said Jeff LaFrance, an analyst at Gradient Analytics, in an interview Wednesday. "New financial regulations are taking away their ability to make profits elsewhere on deposit accounts, so they're charging fees."

One big change is the regulation of so-called interchange fees on debit cards, which Bank of America recently warned could knock $1.8 billion to $2.3 billion off annual revenue generated by its Global Card Services business, starting in the third quarter of 2011.

Banks have been experimenting with new pricing techniques as the financial-reform bill worked its way through Congress, Richard Bove, an analyst at Rochdale Securities, wrote in a recent note to investors.

"The simplest is to place a monthly maintenance charge on each account," he said. "The amount might vary from $8 per month to $12 per month."

Bove says this extra cost could force some poorer depositors to shut their bank accounts, leading to the loss of roughly 14 million accounts. These people may struggle to find other more affordable bank accounts, he added.

"This is a very rough estimate but it is likely to be low not high," Bove wrote. "This bill is going to harm the very people it supposedly helps."

Wells Fargo Chief Executive John Stumpf also criticized the new financial-reform bill on Wednesday, although he didn't specifically address checking accounts and fees.

"We remain concerned that some aspects of regulatory reform may have unintended negative impacts for America's financial system, consumers and businesses," Stumpf said in a statement.

http://www.marketwatch.com/story/new-bank-regulations-may-end-era-of-free-checking-2010-07-21?siteid=nwhpf