Bank of America Corp. is working on sweeping changes that would require many users of basic checking accounts to pay a monthly fee unless they agree to bank online, buy more products or maintain certain balances.
The plan by the nation's second-largest bank by assets is the latest sign of stresses in the banking industry at a time of low interest rates, slow economic growth and new rules limiting many types of service charges. Many other big banks, including JPMorgan Chase & Co. — the nation's largest — and Wells Fargo & Co., have rolled out plans that aim to raise fee revenue or push customers to do more business with the bank.
Those efforts are tricky, because they risk upsetting the banks' best customers or drawing fire from politicians. Bank of America retreated last fall from a new $5 debit-card charge following a customer revolt and a wave of criticism.
The search for new sources of income is especially pressing at Bank of America, where 2011 revenue dropped by $26.2 billion, or 22%, from its 2009 level.
Bank of America pilot programs in Arizona, Georgia and Massachusetts now are experimenting with charging $6 to $9 a month for an "Essentials" account. Other account options being tested in those states carry monthly charges of $9, $12, $15 and $25 but give customers opportunities to avoid the payments by maintaining minimum balances, using a credit card or taking a mortgage with Bank of America, according to a memo distributed to employees.
It is unclear whether the bank, which counts more than 55 million U.S. households as customers, will stick with its initial idea for a basic flat-fee checking account that doesn't offer a way to avoid paying a charge. Bank officials have made no final decision about specific charges or the timing of a national rollout. Bank of America declined to comment.
Banks often lose money on accounts like basic checking that they use in part to lure younger customers. They offer the accounts in part because they are hoping to retain the customers as they grow more affluent and become more apt to use more lucrative services such as mortgage and business loans and credit cards.
Many banks have already eliminated the free checking accounts that had been in place since the 1980s and dismantled rewards programs for debit cards. Bank of America currently charges a wide range of monthly fees for checking accounts, unless customers meet certain requirements, but the new plans being tested could change the amounts being charged and the triggers for fees.
Some Bank of America branch employees in the Northeast have already been trained to handle the first phase of a U.S. rollout, one branch manager said.
The banks are apt to raise fees on the most basic accounts in part because many of their users don't end up using more services, and the banks would prefer to focus on customers whose business is more profitable.
The goal of a revised fee structure, the branch manager said, would be to be sure "bank products are used...where they achieve profitability."
Service charges that U.S. banks collect on savings and checking accounts totaled $8.67 billion in the fourth quarter of 2011, down 16% from two years earlier, before limits took effect on the fees financial institutions can charge merchants for accepting credit and debit cards, according to Federal Deposit Insurance Corp. data.
JPMorgan consumer banking chief Todd Maclin told investors Tuesday that the bank would like to be able to charge more than its current average of $10 to $12 a month, but "in this environment I am not going to rock that boat."
The fee experiments exemplify some unintended consequences of the 2010 Dodd-Frank financial-regulation overhaul, which clamped down on certain revenue sources of banks and motivated them to seek ways to make up the difference.
JPMorgan Chase and Wells introduced new account structures in 2010 and 2011 that imposed monthly maintenance fees unless customers were able to maintain certain minimum balances or hit preset monthly deposit levels. JPMorgan said Tuesday that 70% of customers with less than $100,000 in deposits will become unprofitable for the bank because of new regulations, such as caps on overdraft fees.
Some critics say the practice of charging fees on checking accounts is socially regressive, because the fees make up a larger proportion of income for a poor person than for the more affluent.
Mike Moebs of Moebs $ervices Inc., a bank consultant in a Lake Bluff, Ill., said Bank of America could lose some customers if a basic account with a flat fee is rolled out across the country. "They will keep everybody they are making money with and try to shed everybody else," he said.
Mr. Moebs also said new charges by the bank will likely hit a broader portion of Bank of America's customer base than the debit fees it abandoned.
After the bank told employees in fall 2011 of its plan to levy monthly fees on those making debit-card purchases, U.S. Sen. Richard Durbin (D., Ill.) called on customers to "vote with your feet." Jay Leno of NBC's "Tonight Show" likened Bank of America on Halloween to a greedy trick-or-treater.
Before Brian Moynihan became Bank of America's chief executive in 2010, he had pushed the bank to end its growing reliance on overdraft fees charged when purchases left customers with negative balances. Those fees were falling heavily on a tiny group of mostly poor customers.
But the bank's late-2009 decision to abandon the overdraft charges altogether on debit-card purchases proved costly, depriving the bank of $1.7 billion in annual revenue.
JPMorgan Chase and Wells Fargo didn't cancel their profitable overdraft programs, and some inside Bank of America groused that it couldn't afford to give up that much revenue at a critical time.
The overdraft decision hit Bank of America just before the Dodd-Frank law halved what financial institutions could charge merchants for accepting credit and debit cards. That took away $2 billion in annual revenue from Bank of America.
The double hit prompted bank executives to look for new revenue ideas that could be fast-tracked because the outlook for the bank's consumer operations was so bleak, said one person familiar with the planning. That was when the bank came up with the idea of imposing a $5 monthly fee on certain customers who used their debit cards for purchases. It was a plan that could be implemented quickly and wouldn't require a lot of new technology.
Before deciding to move ahead, Bank of America held lengthy discussions with community and fair-lending groups and the newly created Consumer Financial Protection Bureau, among others.
The bank was so eager to recoup revenue that it moved up the planned launch up by two or three months to early 2012, said the person familiar with the bank's planning.
After the public outcry, several other banks ended up dropping the debit-charge fees before Bank of America retreated.
The debit-card fee wasn't the only revenue idea Bank of America shelved late in 2011. It decided not to test a plan in which customers who were about to make a debit-card purchase but didn't have enough in their account would have gotten an alert giving them the option of buying overdraft protection.
Bank managers also discussed, and ultimately rejected, a fee for customers who want to tap into their paycheck early.
The bank didn't, however, scrap the testing of potential new checking-account fees. The initial plan was to roll out the new accounts in late 2011 or January 2012, said the branch manager, but that timeline was pushed back. Now it could still be "a few months" before the bank is ready, he added.