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The bank's holding company, TCF Financial, said Wednesday that following "multiple layers" of interviews and surveys with its customers, bank officials have decided to do away with monthly maintenance fees on its retail checking accounts.
June 27 -
It costs a bank $349 a year on average to maintain a checking account. As banks decide whether or not to add fees to their free checking offerings, they must evaluate their costs carefully.
December 9
As banks scramble to recoup lost income, TCF Financial's (TCB) strategy to eliminate monthly fees on some checking accounts could be a key test of the free checking model.
The Wayzata, Minn., bank said in late June that it was
The viability of the free checking model has been called into question after new regulations limiting overdraft and debit card interchange revenue spurred many institutions, particularly some of the largest banks, to
That was not the case at TCF. Its bottom line was hit hard by the decision to eliminate free checking as frustrated customers left the bank in droves and service charges from deposit accounts plummeted. In this year's second quarter the bank took in $48.1 million in service charges, a drop of almost 40% from just two years ago.
"Is this model broken? Getting back to growing its customer base will hopefully answer that question," says Terry McEvoy, an analyst at Oppenheimer.
It's too soon to tell if other banks will follow suit. TCF, which pioneered free checking in the mid-1980s, is more dependent on service charge income than many of its competitors, so it has felt the impact of new overdraft and interchange rules more severely.
And in the wake of TCF's two-year experiment with monthly maintenance fees for its basic checking account, it's not clear how much the bank even gained for the hit it took with customers.
The bank doesn't break out revenue from monthly checking account fees, but a bank spokesman said Tuesday that "most" customers were able to avoid fees by meeting certain account usage requirements, like making a certain number of transactions each month.
That is also the case at many other banks. For example, JPMorgan Chase (JPM) disclosed in a February
Larger competitors like JPMorgan are not as dependent on their retail customer base for their overall earnings, and so can more easily sustain some attrition when new fees are added, observers say. But Jeff Platter, a vice president at Haberfeld Associates, a bank consultancy, says he wouldn't be surprised to see some regional banks follow TCF's lead.
"If any of the banks over $10 billion moved back to free checking, it's going to be in those in the $10 to $20 billion asset range," he says.
And while many community banks and credit unions were less likely to impose new monthly fees in the first place, Platter notes that the fallout for those institutions has been dire as well.
He points to one unnamed small credit union that did away with free checking in early 2011 as an example.
"They've seen a net loss that for them is pretty significant," he says. "And credit unions have consumer lending strength, so if a credit union has a very noticeable impact, I can't imagine what it was for TCF."
