Magazine article American Banker

TCF's Return to Free Checking: A Litmus Test for the Industry?

Magazine article American Banker

TCF's Return to Free Checking: A Litmus Test for the Industry?

Article excerpt

Byline: Victoria Finkle

As banks scramble to recoup lost income, TCF Financial's (TCB) strategy to eliminate monthly fees on some checking accounts could be a key test of the free checking model.

The Wayzata, Minn., bank said in late June that it was bringing back free checking in response to customer demand and to stem attrition after it eliminated its free product for certain customers in early 2010. Early results are encouraging. In an earnings conference call on July 19, Chairman and Chief Executive William Cooper said that attrition has slowed and new account openings have increased since the bank reinstated free checking.

The viability of the free checking model has been called into question after new regulations limiting overdraft and debit card interchange revenue spurred many institutions, particularly some of the largest banks, to add or raise monthly checking account fees. Many banks that once touted totally free checking are now counting on these monthly maintenance fees to offset drops in income from service charges.

That was not the case at TCF. Its bottom line was hit hard by the decision to eliminate free checking as frustrated customers left the bank in droves and service charges from deposit accounts plummeted. In this year's second quarter the bank took in $48.1 million in service charges, a drop of almost 40% from just two years ago.

"Is this model broken? Getting back to growing its customer base will hopefully answer that question," says Terry McEvoy, an analyst at Oppenheimer.

It's too soon to tell if other banks will follow suit. TCF, which pioneered free checking in the mid-1980s, is more dependent on service charge income than many of its competitors, so it has felt the impact of new overdraft and interchange rules more severely.

And in the wake of TCF's two-year experiment with monthly maintenance fees for its basic checking account, it's not clear how much the bank even gained for the hit it took with customers. …

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