CHARLOTTE, N.C. — The good news for bank customers this summer is that new federal rules should cut down on unexpected overdraft fees.
The bad news is that banks are starting to design new fees to help make up for the lucrative surcharges they might lose.
On July 1, Wells Fargo ended its free checking account, although there are ways to avoid monthly charges. And Bank of America is testing an array of account options and fees that will be rolled out later this year. Other banks, especially large and midsized ones, are expected to follow suit.
The new rules say customers have to give banks permission to cover everyday debit card purchases and ATM withdrawals if they don't have enough money in their accounts. Banks charge overdraft fees that can reach $35 per transaction for this service.
Only if customers make the effort to opt in will banks cover overdrafts and levy the fees. If customers do nothing, they will in effect opt out and their transactions will be denied.
Customers have been getting notices from financial institutions including Wachovia and Fifth Third telling them to make their choice online, at branches or by phone. Another option is to sign up for an overdraft protection service that taps a savings account or credit card when a checking account doesn't have enough money. These services are typically less costly.
Overdraft services can help keep customers from missing important payments or avoid the embarrassment of bouncing a check. But the high fees have also become a big revenue source for banks. In recent years, the fees have drawn fire from consumer groups and lawmakers as excessive or even predatory.
Bank of America, the nation's biggest bank, announced in March that it's going a step beyond the new regulation. Customers who sign up for new checking accounts are not affected by overdraft fees.
Bank of America will no longer authorize debit transactions, unless a customer has signed up for an overdraft protection service linked to another account. That type of overdraft protection costs $10 each day it's used. Bank of America's current account holders will start having transactions denied in August, unless they have enough money in their accounts or have linked up to other accounts or a credit card.
Bank of America is the biggest bank to start denying debit transactions if customers don't have enough money, although it's not the first. Citigroup hasn't been authorizing transactions in cases where customers had insufficient funds.
A Sandler O'Neill + Partners report last month said Bank of America could suffer the largest hit to annual revenue because of overdraft changes, about $2.2 billion per year at the high end. Bank of America had total revenue last year of $119 billion.
Wells Fargo could lose $1.1 billion in revenue from lost fees, the second biggest hit, according to Sandler O'Neill. Wells Fargo had revenue last year of $88 billion.
Sandler O'Neill called the lost income "fairly manageable" for banks, but noted that banks don't need "any additional negative drivers to earnings" right now.
Greg McBride, senior financial analyst with research firm Bankrate.com, said many banks will probably take a wait-and-see approach before making account changes. For one, a small percentage of customers incur most of the overdraft fees that banks charge. If these customers opt in, banks' fees are unlikely to change much. Banks are also waiting to see how legislation in Congress affects fees banks make from debit card transactions.
"I don't think free checking has gone the way of the dinosaur yet," McBride said.
One bank already making changes is San Francisco-based Wells Fargo, which bought Wachovia of Charlotte, N.C., in 2008. As of July 1, it no longer offers new free checking accounts, although existing customers can keep their no-fee accounts. Customers will be able to get monthly fees waived in several ways — for example, if they have direct deposit or have a Wells Fargo mortgage, the bank said.
Wachovia will continue to offer its free checking accounts until branches convert to Wells Fargo systems state by state. Existing customers, though, can keep their free checking accounts.