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Banks' Fee-for-All : Service Charges Have Become Profit Centers


Trisha Lane, a professional rodeo contestant, Hollywood stuntwoman and part-time model, is hard on her body. She's also hard on her bank.

The 31-year-old deposits between 10 and 20 checks a month, always bypassing the automated teller machine for the teller window. She writes up to 20 checks monthly, uses her ATM card several times each week to get cash and pay for groceries, and calls the Bank of America 24-hour service line at least three times a month to move money between accounts and check her balances.

All of these services cost Bank of America money to provide, but by carefully managing her accounts and transactions, Lane avoids paying any fees. What does her bank think of her? "Probably a hassle compared to how much money I have in there," she said.

Bank of America officials decline to say so, but she's probably right.

Most banking institutions have one thing in common: a growing dependence on fees as a source of income. Banks still make most of their money by making loans, but an increasing share of income is generated by a growing array of fees, including charges for monthly account maintenance, bounced checks, ATM transactions, cashier's checks and sales commissions on investments.

Fee income represented 22% of the $334 billion in gross income for banks last year, double the percentage from a decade earlier, according to the Federal Reserve Board.

Fees "have become profit centers," said Robert Heady, publisher of Bank Rate Monitor, a Florida-based industry newsletter. "Banks charge what they can get away with. And consumers are by and large not fee-sensitive. It's really easy for an unaware consumer to be nicked for $100 to $300 a year."

Banking fees gained widespread media attention a month ago when First Chicago Bank began charging customers $3 for certain teller visits. The fee, roundly criticized by consumer advocates, is designed to encourage customers to do more of their banking at ATMs, which perform routine transactions more cheaply than human tellers can.

Some bankers freely admit that fees are a useful means of influencing customer behavior. Frank Ures, chief executive of American Pacific State Bank in Sherman Oaks, said the bank adopted a $4 check-cashing fee several years ago aimed at non-bank customers. The fee was designed to discourage hordes of workers who were flocking to branches in North Hollywood and Sun Valley to cash their weekly paychecks.

"Lines were out the door and around the block," Ures said. "We had large business accounts that couldn't even get into the bank." After the fee was implemented, those workers "either established accounts with us, went to their own bank or went to check-cashing places," he said. "It helped clean out the lobby."

Most banks don't like to admit they have such motives. Bank of America offers discounts to customers who do all their banking through ATMs, but company spokesman Harvey Radin insisted that the bank does not structure fees to influence customer behavior.

"We're not directing our customers; the customers are telling us what they want," Radin said.

If that is true, then wouldn't customers also like the bank to waive its $2 charge on ATM transactions at non-Bank of America locations? "There are overheads involved," Radin replied.

Aren't overhead costs also involved when customers see human tellers instead of ATMs? "We don't think of it that way," he said.

But analysts say banking institutions do think of it that way. The typical ATM transaction costs about 25 cents, while a routine teller transaction costs about $1.20, said Sanford Rose, a spokesman for First Manhattan Consulting Group, a New York-based financial consulting company. "Banks care mightily" about such cost differentials, Rose said.

Customers who visit tellers numerous times each week and maintain balances just above minimum requirements can cost institutions between $230 and $600 a year, Rose said. So banks do their best to control those costs and count on their best customers--those with high balances and low transaction activity--to make up the difference. "In any bank, the top 20% of customers subsidize everyone else," Rose said.

That means banking institutions rely on customers such as George Ting, the owner of a Northridge-based import-export business. Ting doesn't pay fees on his checking account at Great Western Bank, but Great Western probably doesn't mind because Ting keeps about $70,000 in various savings, CD, retirement and mutual fund accounts.

"They make more money on those fixed accounts than by making peanuts [charging fees] on the checking account," Ting said. "That's why they give me lifetime free checking."

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