Bank of America Considers a Revamp That Would Affect Millions of Customers

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 J.P. Morgan 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.

In addition, 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. Bank officials have made no final decision about specific charges or the timing of a national rollout, though the effort has gained even more urgency in the past few months. People close to the bank said Chief Executive Brian Moynihan is determined to plow ahead. Bank of America declined to comment.

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. That scenario is considered less likely than telling checking-account customers they will face a new fee unless they go online or take other steps outlined by the bank.

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 hope to retain customers as they grow more affluent and use 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.

If the plans under consideration work from Bank of America's perspective, it would either collect more in fees on checking accounts or increase its profitability as customers made greater use of its services. The goal is to be sure "bank products are used…where they achieve profitability," the bank manager said.

Service charges 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 firms can charge merchants for accepting credit and debit cards, according to Federal Deposit Insurance Corp. data.

J.P. Morgan consumer banking chief Todd Maclin told investors Tuesday 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.

J.P. Morgan Chase and Wells introduced new account structures in 2010 and 2011 that imposed monthly maintenance fees unless customers maintained certain minimum balances or hit preset monthly deposit levels. J.P. Morgan 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.

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, Sen. Richard Durbin (D., Ill.) called on customers to "vote with your feet." Jay Leno of NBC's "Tonight Show" jokingly likened Bank of America on Halloween to a greedy trick-or-treater.

Before Mr. Moynihan became the bank's chief executive in 2010, he had pushed it to end its growing reliance on overdraft fees charged when purchases left customers with negative balances. Those fees were falling heavily on mostly poor customers. But the late-2009 decision to abandon overdraft charges altogether on debit-card purchases proved costly, depriving the bank of $1.7 billion in annual revenue.

J.P. Morgan Chase and Wells Fargo didn't cancel their 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 came just months 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 the bank.

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 it came up with the idea of a $5 monthly fee on certain customers who used their debit cards. It was a plan that could be implemented quickly and wouldn't require a lot of new technology.

Before deciding to move ahead, the bank held lengthy discussions with community and fair-lending groups and the newly created Consumer Financial Protection Bureau, among others.

Bank of America 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 its 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 direct-deposit 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 said.

WSJ