June 24, 2010 -- There's bad news on the way for the country's banks -- and that could, in turn, translate to bad news for American banking customers, experts say.
In Congress, lawmakers are considering an amendment limiting "interchange fees" -- the fees banks charge to merchants each time consumers use debit cards at their stores -- while, at the Federal Reserve, officials are preparing to implement new rules next month stopping banks from automatically charging overdraft penalties for ATM and debit card customers without prior consent. For new accounts, the rules will take effect July 1; existing accounts will be subject to the changes Aug. 15.
Combined, the two measures will hurt bank revenues and leave them scrambling to recoup their losses -- and that will likely mean new fees or new restrictions on once-free checking accounts, said Greg McBride, senior financial analyst at Bankrate.com.
"Free checking used to be available to anybody who walked in the door," McBride said. Now, he said, "it's either not going to be available to some banks, or it's going to require jumping over some hurdles."
At least one major bank has already announced increases to its checking account charges: Wells Fargo, the country's fourth-largest bank by assets, will increase monthly service charges by $2 to $5 on July 1, depending on the account, a bank spokeswoman confirmed.
Bank of America, the country's top bank by assets, is "testing new offerings" for its checking account services -- the bank already has monthly maintenance fees on its checking accounts -- that will provide customers with "more choices on how they can pay" for the bank's services, a BofA spokeswoman said.
Both banks stress that customers can get checking account fees waived if they meet certain requirements, such as maintaining certain minimum balances, having their paychecks directly deposited to their accounts or using other bank products.
But McBride warns that some of the steps consumers might need to take to avoid checking account fees will come at a different cost. Maintaining a higher minimum balance in a checking account, for instance, may force a consumer to transfer money out of a higher-yielding savings accounts. Savings accounts generally feature substantially higher interest rates than checking accounts, which often don't offer interest rates at all.
Adding direct deposit to a checking account, meanwhile, may make it more of a hassle for a customer to switch their business to another bank later on.
"The more products and services that the bank has with that customer, the less likely they are to defect to a competitor," McBride said. "Direct deposit is one of those hooks."
Consumers intent on free or low-cost checking accounts will still be able to find them at credit unions and smaller community banks, McBride said.
"Just because your bank is doing away with free checking, it doesn't mean you have to take it sitting down," he said. "Shop around."
Billions of Dollars on the Line for Banks
Exactly how much do banks stand to lose thanks to proposed and definite regulatory changes? While there's little in the way of estimates on how restricting "interchange fees" would affect banks, losses pegged to overdraft fee changes range from millions to billions of dollars, depending on the bank.
Wells Fargo, for instance, could lose between $568 million to $1.1 billion in revenue, according to a recent report by financial advisory firm Sandler O'Neill & Partners.
JPMorgan Chase, the country's second-largest bank, is roughly in the same neighborhood, with projected losses ranging from $544 million to just under $1.1 billion.
Bank of America would be the biggest loser, according to the report, with its revenues expected to take a hit of between $1.1 billion and $2.2 billion.
Among the big four banks, Citigroup, the country's No. 3 bank by assets, is poised to see the smallest losses as a result of the new Fed rules -- between $65.8 million and $131.6 million, according to the report. The bank does not currently charge overdraft penalties but does allow consumers to link their checking accounts to other accounts, for a fee, to cushion against overdrafts. Other banks offer similar services.
Sandler O'Neill managing director Kevin Fitzsimmons said that while new, higher checking account fees may be in the works, banks are also trying another strategy to stem these losses -- aggressive marketing designed to convince consumers to, as the new Fed rules allow, "opt in" to overdraft plans that will continue charging them overdraft penalties.
"They'll definitely try and get as many customers to opt in as they can," Fitzsimmons said.
But banks can't rely on just getting any consumers to sign up for overdraft protection, Bankrate's McBride said. Only a small percentage of consumers -- between 14 percent to 17 percent, according to different studies -- account for most overdraft fees paid. It's in the banks' interest, he said, for those consumers in particular to opt in to overdraft plans.
How successful banks will be remains to be seen. Fitzimmons notes that customers may ignore marketing materials promoting overdraft protections. Banks, he said, may have more success convincing consumers to sign up for overdraft protection later this summer after those who are low on funds actually start to see their debit cards rejected by retailers.
Some customers, however, say they'd rather get their cards rejected than be hit with overdraft fees.
Joanna Pecina said she learned her lesson after racking up nearly $120 in overdraft penalties. Pecina, of Houston, said in a message to ABCNews.com that she would not opt in to an overdraft plan.
"Though the idea of being rejected at Macy's hurts my ego, at least I won't be feeding the bank's pocket any more than I have to," she said.