LAKE BLUFF, Ill. — Free checking was always a misnomer for financial institutions, but now big banks are increasing their pullback from this one time "loss leader," according to a new study.
The study, conducted by Moebs Services, surveyed nearly 2,900 financial institutions in January and found that those with $25 billion or more in assets are pulling back from free checking because of escalating costs and low — or no — profitability.
But in institutions with less than $100 million in assets, only 37% of banks surveyed offered free checking.
"That's a show-stopper," said economist and CEO Michael Moebs.
According to Moebs, only 59.1% of FIs today offer free checking — a 27% drop from 2009, and near the level that was offered in 2002. The reasons for that include fraud losses, increased costs of opening a checking account as a result of Reg E Opt-In, and increases in the cost of maintaining a checking account due to Dodd-Frank and the CFPB.
The end result, said Moebs, is that it now costs more than $380 to operate a checking account — and that's aside from the fact that Check 21 helped push ACH and debit cards as preferred transaction methods over checks.
"Technology has enhances checking accounts systematically, but this has come at enormous costs," he said.
Breaking down the data, Moebs Services found that more than 80% of FIs with $25 billion or more in assets no longer offer free checking, however those tend to mostly be banks rather than credit unions. About 51% of what the firm called "Main Street FIs," with $100 million or less in assets continue to offer free checking.
"Wall Street banks have gotten out of the free checking because they can't make money with their intrinsic high operating costs exacerbated by increased costs due to regulation and legislation, as well as the court cases which have substantially curtailed their fee revenue," said Moebs. Community banks and FIs with lower operating costs, he added "still need to make transaction accounts break even."
