BUSINESS
SEPTEMBER 30, 2011.
Banks Plan New Fees for Using Debit Cards .
By ANDREW R. JOHNSON
The nation's beleaguered banking industry, which has been raising fees and doing away with free services, has a new target: debit-card users.
Bank of America Corp. is laying plans to charge millions of customers a $5 monthly fee to use their debit cards, and other big banks are expected to follow suit. The industry says it needs the fees to recoup revenue it will lose because of new government regulations taking effect Saturday that cap what they can charge merchants for debit-card transactions.
Bank of America, the largest U.S. bank by assets, disclosed the plan on Thursday in a memo to its senior staff. It intends to begin collecting the fees nationwide early next year.
Several other large banks, including J.P. Morgan Chase & Co. and Wells Fargo & Co., are testing or plan to test similar fees in some states. Regions Financial Corp., a Birmingham, Ala.-based lender, has said it will start charging a $4 monthly debit-card usage fee on certain accounts on Oct. 1.
New federal limits on debit-card "swipe fees" are expected to cost U.S. banks an estimated $6.6 billion a year in lost revenue.
To offset that lost revenue, many banks have eliminated or scaled back debit-rewards programs, added monthly fees for checking accounts and raised minimum balance requirements for customers to avoid certain fees.
The limits on debit-card swipe fees—one of the most contentious regulations to arise from the financial crisis—were finalized by the Federal Reserve Board in June. The new rules will cap at 24 cents the fee merchants pay banks each time a customer buys something with a debit card, down from the current average of 44 cents. The rules apply to banks with $10 billion and more in assets.
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Bank of America has said it expects the caps, which the industry lobbied against for months, to erase $2 billion in revenue annually.
"The economics of offering a debit card have changed with recent regulations," a spokeswoman for Bank of America said Thursday.
In its internal memo, Bank of America said it will levy the $5 fee each billing cycle in which a customer uses a debit card to make a purchase. The fee will not be triggered by transactions at automated-teller machines.
The fee will apply to standard checking accounts, but not most premium accounts held by affluent customers. Banks typically exempt their premium accounts from many fees because they tend to be more profitable than standard accounts with lower balances.
Alison Miller, a Bank of America customer in West Windsor, N.J., who uses her debit card several times a week, said she would consider changing banks because of the new fee.
"It's just another way of gouging the customer," she said.
As banks were lobbying against some provisions of last year's Dodd-Frank financial-reform legislation, they warned that the new rules would force them to raise fees on some products, hitting consumers with higher costs.
Trish Wexler, a spokeswoman for the Electronic Payments Coalition, a trade group that represents Visa Inc., MasterCard Inc. and several large banks, said the new fees are an "unintended consequence" of the new rules.
Sen. Dick Durbin (D-Ill.), who championed the legislative provision that led to the caps, said in a prepared statement: "After years of raking in excess profits off an unfair and anticompetitive interchange system, Bank of America is trying to find new ways to pad their profits by sticking it to its customers. It's overt, unfair, and I hope their customers have the final say."
Bank of America declined to comment on reaction to its plan.
Brian Riley, a senior research director of bank cards at research group TowerGroup, said the new fees are not a surprise given the amount of revenue on the line for Bank of America and other banks with lots of debit-card customers.
"Bank of America has a real challenge," he said.
Bank of America, which has been rocked by large losses on its mortgage portfolio, said it has more than 58 million banking relationships with consumers and small businesses. Its customers are projected to make $260 billion in debit-card purchases this year, according to Mr. Riley's research.
Bank of America's planned $5 fee is higher than what most other banks are testing or planning to charge. San Francisco-based Wells Fargo said it will charge a $3 fee for some debit-card customers in Nevada, Washington, Oregon, New Mexico and Georgia, starting Oct. 14. Wells Fargo's fee also applies to debit-card use, not ATM transactions.
A Wells Fargo spokeswoman said that the fee is part of a pilot program, and that the bank has not determined whether it will roll it out to all customers. Wells Fargo has said it expects to lose $250 million each quarter from the new caps on swipe fees.
J.P. Morgan has been testing a $3 fee in a small market in Wisconsin since February. SunTrust Banks Inc. has begun charging a $5 monthly fee for "unlimited debit-card purchases." The fee has been in effect since June for new customers that open an "Everyday Checking" account, and will go into effect in November for existing customers who choose that account.
Citigroup Inc. said last week it was raising fees on certain checking accounts but would not charge fees for using debit cards.
Norma Garcia, a lawyer for advocacy group Consumers Union, said she urges consumers to read their bank statements and shop around for account options if they are unhappy with new fees.
"I'm not making business decisions for BofA, but I can only say from a consumer perspective, consumers are tired of being nickel and dimed," she said.
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