Good Customers Boost Bank of America, Citibank – So Why New Fees?

The formerly bailed-out big banks already had an image problem, along with the ire of the Occupy Wall Street movement, before October came along and the wrath of consumers escalated further.
In rapid succession over recent days, announcements of new banking fees from Bank of America and Citibank were followed by strong earnings reports by both banks buoyed by improved “credit quality” and greatly diminished contingencies for credit losses.
In plainer terms, Citibank and Bank of America were well-served in the third quarter by loyal credit customers, paying down their cards while mindful of high balances, further risk-taking and avoiding default in economic hard times.
It’s no wonder why the Occupy movement has now seemingly sharpened their focus on these banks, institutions more closely associated with main street ATMs than with the Wall Street investment houses that were a cornerstone of the financial crisis.
Bank of America is launching a $5-a-month debit card fee in January that would be triggered by a single purchase. BofA contends the fee is necessary because of new limits on what banks can charge retailers for processing debit card transactions.
Sen. Richard J. Durbin, D-Illinois, the biggest proponent of this portion of financial reform law, has urged disgruntled BofA customers to switch to other banks. However, other banks are considering or experimenting with similar fees, including Regions Financial, Chase and Wells Fargo.
In BofA’s earnings report, the second-largest U.S. bank said it earned net income of $6.2 billion in the third quarter, up from a net loss of $7.3 billion a year ago. Its U.S. credit card accounts grew by 17 percent in the third quarter, compared to the second quarter of 2011. And credit quality continued to improve as well, with the 30-day-plus delinquency rate by card customers declining for the 10th consecutive quarter.
Its Card Services division reported net income of $1.3 billion, compared to a loss of $9.8 billion a year ago.
Provisions for credit losses were down $2 billion from a year ago to $1 billion, “reflecting improving delinquencies and collections and fewer bankruptcies as a result of improving economic conditions and lower average loans,” Bank of America said.
Starting in December, Citibank will charge $20 a month on mid-level checking accounts, unless the customer has combined balances of $15,000 or more in checking, savings and investment accounts or loan balances. The fee was previously waived for combined balances of $6,000 for that level of account, which offers perks such as interest-bearing checking.
Citibank made a point to email customers that it was not imposing any debit card fee, such as the one announced by Bank of America.
Citigroup reported net income of $3.8 billion for the third quarter of 2011, which was 74 percent higher than the prior year and 13 percent above the second quarter 2011.
Its solid earnings reflected the impact of accounting gains and a $2.6 billion improvement in the cost of credit, which was partially offset by an 8 percent, or $940 million, increase in operating expenses from the prior year period.
The total cost of credit fell 43 percent to $3.4 billion. The improvement in credit costs was driven by a 41 percent decline in net credit losses to $4.5 billion, and a $1.4 billion release of credit reserves.
Much like BofA has driven customers away with its debit card plan, Citibank has seen customers switch institutions over its modified checking account charges.
Todd Sandler, head of product strategy at ING Direct USA, told Time Moneyland that ING saw a 43 percent increase in its fee-free checking account openings in the days following Citibank’s decision.
Raj Date, the Treasury official overseeing the new Consumer Financial Protection Bureau until the Senate approves a full-time director, told the Los Angeles Times that the agency might seek simpler checking account disclosures in the aftermath of the BofA and Citibank announcements.
The agency was created by last year’s financial reform legislation. It has the authority to write rules to protect consumers from predatory, abusive or deceptive practices by banks and non-banks that offer consumer financial services or products, including mortgages, credit cards and payday loans.

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