Are banks crying uncle on new debit fees? Don't count on it

JP Morgan Chase gave up on a new $3-a-month fee after a test in Wisconsin and Georgia, and the Wall Street Journal says other banks seem to be backing off, too - perhaps even Bank of America, which started the current firestorm by announcing plans to impose a $5-a-month charge for debit-card use.

So did consumers "win"? It's a lot more complicated than that.

The Journal story says that in addition to Chase, at least four other banks - U.S. Bancorp, Citigroup Inc., PNC Financial Services Group Inc., and KeyCorp - have acknowledged similar moves, which the Journal and others frame as banks' backing down from following in Bank of America's footsteps. (I explained BoA's plan, and the ensuing firestorm, here and here.)

But Chase's decision sounds more like PR than a significant change in direction. Chances are that other big banks are making similar calculations.

Chase says it expects to lose $1 billion a year from the new Federal Reserve rules that limit debit-card transaction fees to a level "reasonable and proportional to the cost incurred by the issuer," which was required by the so-called Durbin Amendment to last year's Dodd-Frank financial reform.  Collectively, the nation's largest banks - the only ones directly affected - are expected to lost $6 billion to $8 billion a year in revenue.

Chase, now the nation's largest bank measured by assets, hasn't said much publicly. But a person familiar with the bank's pricing told me that the idea that big banks were boosting debit fees "clearly has become a lightning rod."  Without conceding cause and effect, he said Chase planned to end an eight-month test of the $3 fee it has been testing under a "customized checking" option in northern Wisconsin and Georgia.

But other aspects of Chase's pricing scheme make clear that the bank hasn't abandoned its effort to generate new revenue from fees.

The test account charged a $5 monthly fee, then invited customers to "Customize Your Account" via the $3 debit-card fee, a $3 fee for a paper statement, and a $5 fee for enrolling in online bill payment.

Chase found that test-market customers preferred its "Total Checking" account, which charges a higher base fee - $12 a month - that is waived for customers who receive at least $500 a month in direct deposits, maintain a minimum balance of $1,500, or have a combined deposit-and-investment balance of $5,000.

But both accounts replaced an account that now looks like a relative bargain: Checking with a $6 monthly fee that was waived under similar circumstances, plus one more: Customers could escape the monthly fee simply by making five purchases each month with their Chase debit cards.

"The debit-card thing became a lightning rod," said the source familiar with Chase's pricing. And he said Chase "found customers didn’t like the lightning."

What Chase didn't like was the loss of a lucrative revenue stream. Not surprisingly, it hopes  to regain as much as possible - whatever the market will bear. And you can bet that every fee-reliant bank - which means every big bank - will be doing the exact same thing.

Want to just say no? I wrote here about a small Philadelphia bank that says it can be profitable the old-fashioned way - from the interest-rate spread - while compensating depositors for the cost of four or six ATM transactions per month at other banks' cash machines. It's not alone - credit unions often offer similar options.

At least one local institution, Philadelphia Federal Credit Union, is trying to capitalize on the declaration of this Saturday, Nov. 5,  as "Bank Transfer Day" by Occupy Wall Street activists.





 $12 monthky fee – waived if you get DD of $500 a month, or a minimum balance of $1,500, or $5,000 in combined deposits and investments