Fee bank

Fleet Bank's merger with BankBoston is bad news for consumers

Fleet Bank's annual meeting at the World Trade Center this past Tuesday was greeted by noisy protests outside the building. That's because consumer advocates are worried about higher banking fees, cutbacks in lending to poor neighborhoods, and reduced banking competition in the wake of Fleet's merger with BankBoston -- and they're right to be worried.

With the merger, New England will be left with just one major bank: the new FleetBoston Financial Corporation. It will own two-thirds of the ATMs in the region and will be worth more than $185 billion -- making it the eighth-largest bank in the country. Fleet's nearest competitors, Sovereign Bank and Citizens Bank, are worth $35 billion and $29 billion, respectively. Although many people recognize that the finance industry is changing and that banks must consolidate to remain competitive in the global market, consumer advocates are worried about how this is going to affect us locally.

Already, the signs aren't good. Fleet is taking on two million of BankBoston's customers. By Fleet's own estimates, 700,000 of them will see higher bank fees as a result of the merger.

With a "Classic" account at Fleet -- the account that most BankBoston customers will be transferred into -- customers will get 50 free transactions per month if they keep a $2000 balance in their regular checking accounts. If the balance dips below $2000, a $10 monthly fee will be assessed, along with 25-cent charges on every check or ATM withdrawal. A basic checking account requires no minimum balance, but customers get only 10 free transactions per month. After that they'll be charged $1 for each check, ATM withdrawal, or use of a debit card. And they'll be charged $2 per call if they phone the bank more than four times per month. A third option, called self-service banking, requires no minimum balance and allows unlimited electronic transactions, but every phone call to the bank or visit to a teller will cost $2.

BankBoston, by contrast, included 10 free monthly debit transactions and four ATM withdrawals in its basic checking account. After that, customers were charged 75 cents per transaction, with monthly costs capped at $8.50. Fleet will not cap its fees. So let's say you're in the habit of making cash withdrawals from an ATM several times a week and using your bank card throughout the week for groceries, coffee and lunch, and household purchases. Your monthly bank fees could rival your bill for cable television. So much for the economies of scale we were promised last year when the merger was announced.

Surely one of the most troublesome aspects of this merger is that FleetBoston will now own two-thirds of the ATMs in New England. If you aren't a customer, the fees associated with using a Fleet ATM will be difficult to avoid. Yes, these networks are costly to build and maintain, and banks deserve to charge something for consumer use of them. But let's not forget that when Citibank pioneered the use of the ATM, it did so to save money. Studies have shown that banks save a lot on ATM transactions as compared to transactions processed by a teller. Charging a dollar per ATM use is a sheer profit-making scheme that will come at the expense of all but the wealthiest banking customers. Says Bruce Marks, CEO of the Neighborhood Assistance Corporation of America, which led Tuesday's protests at the World Trade Center: "What distinguishes Fleet's fees is that they target and exploit low- to moderate-income people."

The most significant result of the merger -- reduced competition -- won't be immediately obvious. But it will touch all of New England's banking customers, not just FleetBoston's. For one thing, Fleet's high fees will make it easier for other banks to raise theirs. And there will be fewer alternatives for customers who don't want to pay Fleet's fees. FleetBoston's size is also sure to influence housing and business loans in the region -- almost certainly not in the consumer's favor, given the lack of competition. And how will the merger affect bank lending to poorer communities? When Fleet acquired Shawmut Bank in 1998, loans to low-income neighborhoods dropped. In the early 1990s, Fleet came under heavy fire nationally for its poor performance in lending to all communities from which it takes deposits, including the low-income ones.

It also doesn't bode well for consumers that FleetBoston has already found itself in trouble with state treasurer Shannon O'Brien. The bank broke a promise to the treasurer's office that it wouldn't convert BankBoston customer accounts without 60 days' notice.

FleetBoston's burgeoning control over New England's banking business calls to mind the sway Mr. Potter had over the citizens of Bedford Falls in Frank Capra's It's a Wonderful Life. And New England's bank consumers are on the verge of learning the same lesson George Bailey learned when he saw the benefits his father's Bailey Building and Loan brought to his neighbors: competition is good. Especially for the consumer.

What do you think? Send an e-mail to letters[a]phx.com.