U.S. Bancorp customers will soon get an array of new checking account choices -- and possibly higher fees -- as the bank looks to recoup hundreds of millions of dollars in revenue lost to strict new regulatory limits on bank fees.
The Minneapolis-based bank's decision to overhaul its checking-account offerings -- disclosed Wednesday in a conference call with analysts -- comes as something of a surprise. Less than three months ago, Chief Executive Officer Richard Davis said the bank was performing so well that it had "the luxury of waiting" as its big-bank rivals tried to figure out how to adjust to new regulations.
But regulatory changes will take a much bigger bite out of banks' fee income than many industry experts had expected, prompting banks to scramble for new sources of revenue.
In December, the Federal Reserve proposed capping the so-called "swipe" or "interchange" fees that banks collect from retailers each time someone swipes a debit card. The proposed limit of 12 cents per transaction is far below the current average of 44 cents. And under a new rule that went into effect in July, banks must get permission from account holders before providing overdraft services -- a change that will dramatically curtail banks' overdraft income.
U.S. Bancorp estimates that, taken together, the new limits on debit-card and overdraft fees will slash its fee income by more than $800 million a year, which amounts to about 75 percent of the bank's credit- and debit-card revenue. "We no longer have the luxury of waiting, not for our shareholders anyway," Davis said.
The bank said Wednesday it is now seeking to recoup about half of that lost income by the end of the year through a combination of account and fee changes. Among other changes, the bank will introduce a monthly fee for checking account customers who do not maintain certain minimum balances. It also will reduce or eliminate reward programs on its debit cards. Currently, U.S. Bancorp offers perks such as cash rewards of 1 percent on purchases made with certain Visa debit cards.
U.S. Bancorp is hardly alone in making changes. Starting last summer, a bevy of big banks, including Wells Fargo & Co., Bank of America and J.P. Morgan Chase, introduced monthly fees on accounts that previously had none. Banks also began hiking charges for basic services, like wire transfers and printouts of recent transactions.
Both Wells Fargo and J.P. Morgan have also announced plans to increase their overdraft protection transfer fee, charged when money is moved from one account to another to cover an overdrawn account.
