Banks who have been contemplating imposing fees on “free” checking account to make up for the expected loss in income from the Federal Reserve’s new regulations, effective July 1, 2010 (that will restrict banks and thrifts from imposing overdraft fees on ATM or one-time debit card transactions without the opt-in consent of a consumer) may want to reconsider. (See an analysis of the overdraft fee rules here)
On February 1, 2010, New York Attorney General Andrew Cuomo announced that his office had entered into an agreement with Citibank, N.A. to delay its plan to impose monthly fees on checking accounts that had been advertised as “free” for one year. This agreement was the result of an investigation commenced by the New York Attorney General’s office in response to Citibank’s plan to impose a $9.50 monthly fee for the bank’s “EZ Checking” and “Access” deposit accounts, unless depositors maintained a $1,500 average balance in Citibank accounts. Until November 2,2009, Citibank advertised that these accounts were eligible for "free checking" with direct deposit or twice-monthly online bill payment. (click here for the agreement) According to the Attorney General’s press release, these “free checking” advertisements never disclosed that this service could be terminated at Citibank’s discretion.
The agreement delays the imposition of the monthly fee through December 31, 2011 for customers both in New York and throughout the United States who have EZ Checking and Access checking accounts which were opened between January 1, 2009 and November 5, 2009 . Per check fees are also waived for qualifying customers through January 31, 2011. The agreement also requires Citibank to provide additional notices to owners of these accounts starting in February 2010, and also to post notice on its website advising that fees will be imposed on these accounts commencing in January 2011 if customers do not meet the minimum balance requirements.
While the agreement only applies to Citibank, Attorney General Cuomo stated in announcing the settlement that “we will continue to scrutinize fees that banks are charging customers.” Other attorney generals also may commence their own investigations. In addition, accounts advertised as “free” or “totally free” or “forever free” could be at risk for false and deceptive advertising claims under either Section 5 of the Federal Trade Commission Act or state deceptive practices laws if the institution offering such products decides to change the terms of such accounts to impose monthly or other fees.(See also the FTC Guide concerning the use of the word, "free" here)
