California’s largest credit union, Golden 1, continues promoting its free checking account. During March, 2012, a simple two-panel marketing flyer or buckslip is being distributed inside the branches in brochure holders located at the teller windows. While this is great news, the words “FREE CHECKING’’ are the smallest words on the front of the flyer as you can see below. And the words “Zero,” “Zip,” and “Zilch,” are not carried forward and explained on the back panel. This particular financial institution has, for years, had its own in-house creative agency which accounts for much of its mediocre creative like the piece shown here. It is very important that banks and credit unions offering free checking continue aggressively marketing the account through multiple marketing channels.
This page-dominant ad for free checking being offered by the Nebraska Bank of Commerce appeared in the January 15, 2012 edition of the Lincoln Journal Star newspaper. The downside to this free checking ad is that it contains what could be mistaken as three competing headlines. The key point to be made with this ad is that “NBC Still Offers Free Checking.” At least this bank, unlike so many today, continues using the name “Free Checking Account” versus less impactful names like Value Checking and Regular Checking. One would hope that more banks and credit unions would spend marketing dollars promoting Free Checking online, in the newspaper, in outdoor, and using radio spots.
While I encountered numerous online articles about this move, it was one sentence in the article by JD Malone of Allentown, Pennsylvania’s newspaper The Morning Call that got my attention.
The sentence reads: “Wells Fargo told Reuters that it believes 80% of customers will avoid the fee altogether and that it is offering a $2 discount on the fee if customers sign up for paperless statements.”
Avoiding the fee will require these former free checking customers to either maintain a $1,500 minimum daily balance or have more than $500 in direct deposits each month.
If you are, or were, a Wells Fargo free checking customer, by now you’ve been treated to over two years of “poor me” news articles about the big banks’ need for additional fee income for a variety of reasons, including:
- The banks have been losing money offering free checking.
- The loss of overdraft fee income due to legislative changes.
- The loss of debit card interchange fee income due to legislative changes.
- The estimated cost of complying with new legislation – particularly Dodd-Frank.
- The costs of providing mobile banking services.
And I’m sure other reasons have been provided that I’ve missed.
So, when Wells Fargo sends you a notice advising you that your free checking account is being replaced by the new “Essentials” checking account with its $7 monthly fee, you reason the purpose of the fee is to replace the billions of dollars the bank has been losing for the past couple of years or longer.
Unfortunately, this reasoning seems to be contradicted by the statement above about the bank believing 80% of its Essentials Checking customers will avoid paying the fee.
This begs the question as to the bank’s real motivation behind implementing the $7 monthly fee on the free checking replacement account.
Free Checking Accounts Are Coming Back To Big Banks
In the second half of 2011, the number of checking accounts without a monthly maintenance fee increased to 39 percent, up from 35 percent earlier in the year, according to the latest Bank Fees survey by MoneyRates.com. Checking accounts that still …
Hey, They Were Listening: Some Banks Reinstate Free CheckingTIMEall 5 news articles »
Free checking is labeled “free” for one simple reason – the word “free” is the single most powerful word used in marketing.
Consumers love acquiring something of value that’s free.
The free checking account as we know it today was first introduced in 1982. At the time, it was launched as Totally Free Checking and later shortened to Free Checking by many of the banks and credit unions offering the account.
At the time, there were no regulations covering the use of the word “free” to describe a checking account.
Over the next eight years, more and more banks and some credit unions jumped on the free checking bandwagon. Along the way, some banks began promoting their accounts as “free” even though the consumers had to keep a minimum balance. Others required direct deposit. These perceived abuses prompted the federal government to include the free checking account in its Regulation DD Truth in Savings Act enacted in December, 1991.
The new regulations went into effect on June 21, 1993.
The new rules governing free checking appear in Section 230.8 labeled “Advertising.”
It reads: “An advertisement shall not refer to or describe an account as ‘free’ or ‘no cost’ (or contain a similar term) if any maintenance or activity fee may be imposed in the account. For purposes of determining whether a checking account can be advertised as ‘free’ or ‘no cost,’ maintenance and activity fees include:
- “Any fee imposed if a minimum balance requirement is not met, or if the member exceeds a specified number of transactions.
- “Transaction and service fees that members reasonably expect to be imposed on an account on a regular basis.
- “A flat fee, such as a monthly service fee.
- “Fees imposed to deposit, withdrawal, or transfer funds, including per-check or per-transaction charges (for example, $.25 for each withdrawal, whether by checking or in person).”
It then goes on to list other fees that are not considered maintenance or activity fees like check printing fees and balance inquiry fees.
Oddly, the new regulation failed to definitively cover whether or not requiring direct deposit eliminates the ability to label an account as free.
Still, the new Truth in Savings law made it crystal clear that for an account to be called “free” it must be free of both a monthly service fee and a minimum balance requirement.
But a lot has happened since the rules went into effect 17 years ago. An avalanche of new technology has dramatically changed the way people do their banking while the economy has taken consumers on a violent rollercoaster ride – which is still moving in unpredictable ups and downs.
In the last 11 years we’ve experienced both the expansion and bursting of the tech stock bubble and, more recently, the housing bubble. We barely escaped a world-wide economic crash while our economic future is still very uncertain.
With record high unemployment, jobs continuing to move overseas, housing prices dropping like a rock, consumers experiencing both deflation and inflation at the same time, record low interest being paid on savings, health care and education costs soaring, and many workers being under-employed, more than ever consumers both need and desire free checking.
A free checking account has much more value to many consumers today than it did when it was first aggressively marketed throughout the 1980s and most of the 1990s.
Now is definitely the wrong time to eliminate one of the most valued bank accounts ever offered. And based on the new stealth free checking accounts from BofA and Chase, senior management at both banks seem to agree.
What we are witnessing today in consumers’ purchase decision making is a new frugality which has ushered in a rush to value.
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