Small banks just as fee crazy as big banks

Stacks of coins

You think big banks are greedy?

Those homey-sounding community banks have gotten just as fat as the bigs on overdraft and service fees.

Now that financial reform has derailed the gravy train, it's the little piggies that are starting to squeal.

And if you're a customer, it could cost you, as small banks look to make up for lost revenue.

Expect them to take some cues from the big banks in looking for new ways to take your money. But they might also strike out on their own and increase loan rates to try and make up what they lost through fee reform.

It's been more than a year since consumer overdraft protections kicked in, including a rule that required banks to obtain your permission before signing you up for their lucrative overdraft protection programs.

Most of us are passing, thanks.

According to a study by Market Rates Insight, banks of all sizes nationwide have lost $1.6 billion in service fees since the reform kicked in.

While the bigs are scrambling to come up with new schemes and fees to replace their old schemes and fees, it turns out that overdraft reform has hit community banks particularly hard.

According to the FDIC, overdraft fee revenue at banks with assets of $500 million to $1 billion fell 27.8% year over year in the first quarter compared with banks in the $1 billion to $10 billion range, which experienced just an 8.1% decline.

As you might expect, losing that kind of revenue adversely affects a bank's profitability.

Community banker Blair Hillyer tells American Banker he's planning drastic measures, including layoffs and bumping interest rates on loans to offset a projected $50,000 shortfall at his First National Bank of Dennison in Ohio.

All of which makes sense.

Community banks by nature lack the resources to devise and deploy new moneymaking structures and strategies and accurately analyze the pain points of their customers.

Their default position has always been to see what the bigs come up with and offer a scaled-down version to remain competitive in their markets.

Of course, there could be a bright side to all this turmoil for those community banks that still possess what the major banks have already cast aside: genuine customer service.

If they can embrace that -- yes, even in the face of irate shareholders -- my guess is that America will opt in, sick as we are of the shenanigans promulgated by the monster brands.

Think it over, community banks. It might just save you from extinction.

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