Few of the big banks that operate in Minnesota still offer truly free checking accounts.
Many now come with maintenance fees, minimum balances or a charge for mailing paper statements -- all ways in which banks can raise revenue as they anticipate a dramatic drop in overdraft fee income with new federal regulations that have kicked in.
There are no signs yet that customers with checking accounts at big banks are abandoning them en masse, but smaller banks and credit unions in Minnesota are taking notice of the changes. And some plan to play up their free checking account offers in hopes that more big-bank customers will wander their way.
"Customers have experienced how expensive free can be," said Perry Forst, president of Citizens State Bank in Norwood Young America, located about 40 miles from Minneapolis.
Forst said his bank plans to run ads in the community newspaper in the coming weeks to point out that it doesn't charge customers to have paper statements mailed. It's in response to some bigger banks pushing customers to electronic statements and others -- including Bank of America -- charging a fee for certain accounts to receive paper statements.
TCF ended its free checking earlier this year, and Wells Fargo has put new fees or requirements on new checking accounts. U.S. Bank still offers free checking with no minimum balance, but a spokeswoman said company executives have not said any thing definitive about whether it's here to stay given the changing regulatory climate.
"I think it will be an opportunity for us," Forst said of the changes some banks are making in response to new regulations. "That change in the status quo tends to highlight the distinct difference in the business model that's used by the larger institutions versus the community bank."
That difference is customer service, said Marshall MacKay, president and CEO of the Independent Community Bankers of Minnesota. MacKay said nearly all community banks in the state currently offer free checking, and he expects they'll try to keep offering it because it's important to customers.
“I think it will be an opportunity for us.”Perry Forst, president of Citizens State Bank
"Certainly their hope is to retain free checking for their customers as a basis for -- and hopefully a growth objective for -- their community bank," MacKay said.
But MacKay also acknowledged that all banks and credit unions face uncertainties about how new financial regulations will effect them.
The biggest change so far has been requiring banks to get customers' permission before giving them overdraft protection -- which allows the bank to charge customers a fee when they overdraw their accounts. Another big change that hasn't taken effect is new limits on interchange fees -- the fees banks charge retailers when a customer pays with a debit card.
Smaller banks and credit unions are exempt from the interchange fee limits, allowing them to charge higher interchange fees than big banks. But some question whether it's a realistic outcome.
"There's the possibility for that. I think what we're waiting to see is what is the economic reality of how that's going to work," said Mark Cummins, president and CEO of the Minnesota Credit Union Network.
At least one observer of small financial institutions said small banks and credit unions won't be able to rely on higher fees to keep their revenue coming. Jerry Rossow, who presides over a Twin Cities-based marketing and consulting firm that works with small banks, said it's not likely new checking account customers will be a major source of revenue, either.
"I think community banks can take customers away [from big banks], but it's not going to be easy," Rossow said.
One problem is that many big-bank customers have all sorts of electronic payments and direct deposits set up, making it a pain to switch, Rossow said.
Rossow said small banks will -- and should -- try to make their free-checking offers become a competitive advantage. But he said they'll also have to be ready to find ways to cut costs.
"The new regulations are going to put well-meaning bankers in a tough place where they really do have to look at the bottom line very, very carefully," he said.