Free checking accounts may be one step closer to extinction.
Starting July 21, regulatory changes are expected to sharply limit the fees that banks can collect from merchants whenever customers pay with debit cards.
An attempt to delay implementing the rule by a year was narrowly defeated this week, meaning banks will be looking in earnest for ways to make up an estimated $14 billion in lost revenue.
Customers have already seen the fallout start to take hold.
Bank of America is testing a new lineup of accounts that come with fees ranging from $6 to $25, depending on the level of service selected. Citi already revamped the terms on its checking accounts last year to include higher fees in many cases. Chase, PNC Bank and Wells Fargo ended or scaled back their debit rewards programs.
And more unwelcome changes are likely in store. Among the possibilities: Fees for debit cards and even a $50 or $100 cap on transactions.
"Banks have two ways they can cope; they can cut costs or they can raise revenue," says Bart Narter, a banking analyst with the consulting firm Celent. "They're going to have to charge you for things that they used to give away, like online bill pay."
Here's what consumers should watch:
It's still relatively easy to find a free checking account. But it's becoming more likely that there will be conditions you have to meet to avoid monthly fees.
You may have to do all your banking online, for example, rather than going into a branch. Or you may have to maintain a minimum balance or make a certain number of transactions every month.
Meanwhile, the availability of free checking accounts with no conditions shrank last year, for the first time since 2003, according to Bankrate.com. Only 65 percent of checking accounts were free in 2010, down from 76 percent the previous year.
Much of that pullback was a response to another regulation last summer that prohibits banks from enrolling customers in overdraft programs without their consent. Overdraft fees, which are often $35 or more per violation, were an important revenue stream for banks.
The new regulation on merchant fees is set to only further hasten the disappearance of free checking.
"It's going to be free checking with a lot more strings attached," Narter says. "Or free checking without the bells and whistles."
Rewards programs for debit card purchases are a valued perk for many checking account customers. But they may soon only be available to the top customers, if at all.
In April, Wells Fargo stopped enrolling new customers in its debit rewards program, citing the regulatory changes and costs facing the industry. The bank says it hasn't made any final decisions on whether the program will continue for customers who were already enrolled.
Chase has already made the decision to end debit rewards for both new and existing customers.
At PNC Bank, only premium customers will continue to earn debit card rewards. The bank is cutting off the perk for those with free checking accounts, roughly 70 percent of its customers.
When customers use another bank's ATM, they can be slapped with two fees _ one from their bank and one from the bank that owns the ATM. This is an easy opportunity for banks looking to raise revenue.
In some cases, banks may start imposing out-of-network fees on customers.
TD Bank, for example, says it will now impose a $2 fee when customers use another bank's ATM. Other banks, such as Citi, have hiked their existing fees for using an out-of-network ATM.
Chase earlier this year even tested ATM fees of $4 and $5 for non-customers who used its ATMs in Texas and Illinois. But the bank dropped the tests a few months later without providing a reason. The fees in those states were lowered back to $3.
New Fees & Products
Customers may also start seeing never-before-seen fees pop up. Chase, for example, is testing a $3 monthly fee in northern Wisconsin for checking account customers who want a debit card.
Depending on how customers react, the bank may incorporate some of its test fees into its new lineup of accounts, slated to be rolled out by early next year.
Although a much more remote possibility, Chase has also said there have been discussions about capping debit purchases at $50 or $100 per transaction. But the bank likely would never risk following through on such a dramatic measure, notes Narter of Celent.
In other cases, customers who aren't able to maintain a minimum balance may be offered a prepaid card instead of a checking account. Prepaid cards, which are not subject to the new cap on merchant swipe fees, are not tied to checking accounts but work like debit cards and can be reloaded with cash.
To offset the drop in revenue, banks are increasingly looking to deepen customer loyalty and capture a greater share of their business. So you may be offered fee waivers on checking accounts for opening additional accounts, whether it's a credit card, savings account or mortgage.
Bank of America is testing tiered accounts in Georgia, Massachusetts and Arizona. Those who maintain higher balances across accounts are rewarded with greater perks.
Customers who select the highest level of service, for example, can earn rewards at five times the normal rate on select purchases with their credit cards.
Meanwhile, those who want a free checking account without meeting any conditions at Bank of America now have to do their banking online and opt for e-statements.
"A lot of institutions are going to be pulling back on everyone except their best customers," says Ken Clayton, chief counsel for the American Bankers Association. "The vast majority of individuals who don't have that kind of relationship will lose access to certain benefits."
Candice Choi can be reached at http://www.twitter.com/candicechoi.