Banks’ Pricing Strategies Spark Debate Increased Fees Help Banks Recover, But Some Consumers Balk

Did you cost your bank money today?

According to Dain Bosworth bank analyst R. Jay Tejera, half of all bank customers do. The widespread restructuring of bank fees is just one way financial institutions are trying to sort customers they want to retain from those they hope never darken their lobbies again.

The days of rewarding new customers with toasters are long gone, he said.

Fifteen years after banking was substantially deregulated, Tejera said, banks finally are figuring out how to value specific services.

They have, for example, hiked the cost of a bounced check from about $5 five years ago to around $18, based on national averages, because they determined consumers don’t consider that fee when picking a bank.

Bankers have also identified their market niches, and have tailored their fees to suit those customers, he said.

The positioning is akin to that ongoing in the telephone industry, where carriers have created a blizzard of calling plans.

A hodgepodge of balance requirements, penalties and fine print distinguish one bank account from another, making it difficult for consumers to decipher the best plan.

One consumer’s fitted suit can be another’s creeping underwear.

The discomfiture cinched tighter last month with the release of a consumer group study that claimed fee hikes were outdistancing cost increases at a time when bank coffers were bulging.

And First National Bank of Chicago was pilloried last spring when it imposed a $3 charge for using a teller instead of an automatic teller machine.

Although the results of a just released study by the Federal Reserve Bank do not conform with those of the consumer group, they underscore the increased emphasis in the financial industry and among watchdog groups on charges imposed for everything from the use of automated teller machines to no-frills checking accounts.

These fees are critical to banks, which are thriving after piling up losses in the 1980s. A Federal Deposit Insurance Corp. report indicated fees generated 25 percent of gross income in 1993.

Fortunately for Washington and Idaho residents, the new studies reiterate past findings that they pay less for banking services than most Americans.

Idaho, for example, ranked second lowest in a survey of 25 states and the District of Columbia released last month by the Washington Public Interest Research Group. Washington was fifth.

In a survey done by the same group and its national affiliate two years ago, Washington led the list of states with lowest-cost services, with Idaho placing seventh.

That study, however, sampled a different set of institutions.

And in ranking state institutions as a whole, the latest study also assumed an average consumer would violate bank minimum deposit requirements, triggering monthly fees.

That assumption and others prompted a sharp attack by the American Association of Bankers, which also criticized what the organization said was an underlying assumption of such studies: That bank services should be free.

Depending on type, an organization statement said, checking accounts cost banks somewhere around $200 per year to maintain.

Not only did the WashPIRG study fail to acknowledge those costs, the ABA said, the consumer group did not attempt to place fees in the whole scheme of bank-service pricing.

“You have to look at the whole concept of value,” said spokeswoman Virginia Stafford. “We think the customer should decide what’s important to them.”

In fact, the myriad rules used to set fees frustrates any attempt to make side-by-side comparisons.

But if one institution’s accounts aren’t appealing, said Washington Bankers Association Executive Vice President Bruce Kopte, “It doesn’t take much shopping around to find a better deal.”

He and virtually every other bank, thrift, or credit union official in Washington said fierce competition has kept fees in the region in check.

“Markets are the No. 1 regulator,” said John Bley, director of the Washington Department of Financial Institutions.

He said his agency, which oversees state-chartered institutions, has moved with a light hand in order to encourage new entrants into the market.

As a result, he said, 10 new banks have opened in the last decade, filling gaps left by the loss of 15 to mergers.

And the largest banks have actually lost market share to the newer community banks, Bley said. “That shows a dynamic and highly competitive market.”

Credit unions are a particularly important part of the mix in Washington, where they command around 14 percent of all deposits.

“We price our services based on our members’ relationship with us,” said Doreen Fox, vice president at the Spokane Railway Credit Union.

The higher the amount on deposit, for example, the more services a member receives free, she said.

Fox said Railway officials try to set fees that are competitive without shifting costs in a way that penalizes any group of customers.

At Sterling Savings Association, the approach is to simplify fees to keep them understandable, Senior Vice President Heidi Stanley said.

Sterling, she said, competes on customer service, not fees, where major financial institutions are better able to buy market share.

Seafirst Bank, the state’s largest, offers a spectrum of five checking accounts. Spokesman David Jimenez said the bank has “unbundled” services to target specific market segments, and to assure customers are paying for only the services they use.

He said Seafirst held the line on fees for years while the cost of providing services climbed.

Some of the pressure has been relieved by increasing customer access to electronic banking, he said.

Self service, agreed U.S. Bank of Washington Vice President Karen Davis, cuts bank costs. And part of the explanation for lower costs in the region is the comfort level many residents have with computer technology, she said.

Davis said new customers typically start with a checking account. But she advised those shopping for a bank to look not only at fees for those accounts, but also to consider how a given bank can meet their needs as their financial objectives evolve.

“It’s not easy to change banks,” she said, particularly if a customer has several accounts.

Bankers readily acknowledge that checking accounts are tailored to attract customers who can then be sold other products like credit cards and loans.

Washington Mutual Bank spokesman Bill Erlich said that institution has added 80,000 checking customers in the last year by dropping fees.

Over the same period, the thrift has also been able to increase the proportion of those customers who buy other services.

“We consider checking accounts to be the core product of consumer banking,” Erlich said.

Janice Shields, who co-authored the WashPIRG fees report, advised consumers to resist one-stop shopping. Pick and choose products from different institutions if those best fit your needs, she said.

“They don’t have to bank at just one bank,” she said.

Shields is a banking researcher for the Center for Responsive Law, a group founded by consumer advocate Ralph Nader.

She said the organization hopes to form financial consumer associations that can muster organized opposition to greater banking deregulation.

Ed Mierzwinski, who consulted on the WashPIRG study, said September is a critical month for consumer banking as interstate branching is liberalized and Congress considers measures that will reduce the disclosure requirements on banks.

The Federal Reserve report concluded out-of-state banks charge higher fees, he said, and clearing the way for greater consolidation will only push the trend further.

“Bigger banks mean higher fees,” he said.

, DataTimes ILLUSTRATION: Graphic: Checking out banks

MEMO: This sidebar appeared with the story: TIPS ON BANK FEES Consumers can reduce the cost of financial services in several ways: Many institutions offer special accounts for those who write few checks each month. Use an automatic teller machine owned by your bank instead of one that is part of a network. Ask if combining the balances of checking and savings accounts, or loans, will help avoid monthly service fees. See if you qualify for membership in a credit union, which may offer some services at lower cost than banks or savings and loans.