Angry about new debit-card fees? Switch banks
Bank of America says it will charge debit-card users $60 a year for using their bank's favored alternative to cash and checks. Unhappy customers may want to consider their own alternatives.
Angry about new debit-card fees? Switch banks
Jeff Gelles, Inquirer Business Columnist
Bank of America plans to impose a new $5-a-month charge - $60 a year - for the privilege of using your debit card, its favored alternative to cash and checks. Other big banks, including Wells Fargo and Chase, are testing the waters with new $3-a-month fees, according to reports such as this.
It's hard to say how customers will respond to the new fees, which are partly a response to new Federal Reserve regulations that go into effect tomorrow limiting how much banks can charge for processing debit-card transactions but also a response to earlier rules that clamped down on lucrative debit-card overdraft fees. If you're unhappy with the fee, you may want to consider your own alternatives, especially at smaller regional banks or credit unions.
Before you make any moves, it's worth understanding what's going on, which is little tough to see clearly amid all the spin.
The new rules cap debit-card transaction fees at an average of 24 cents, the Fed says. That includes a flat 21-cent transaction fee, plus a fee of 5 basis points - one-twentieth of a percentage point - based on the size of a transaction, which can be charged only if a bank provides fraud-prevention services. Use your debit card for a $5 purchase, and BoA will collect about 21 cents from the merchant. Use it for a $500 purchase, and BoA will collect about 46 cents.
The Fed says the smaller fees are "reasonable and proportional to the costs incurred by issuers" - the standard set by the so-called Durbin amendment to the Dodd-Frank financial overhaul, which was added after a big push by a coalition of merchants. Without the rules, the Fed had said that fees averaged 44 cents per transaction, nearly twice as high.
Both of the new rules obviously took a big bite - billions of dollars - from the bountiful revenue generated by the Visa and MasterCard debit cards that banks, big and small, have long encouraged customers to use. The New York Times, citing Javelin Strategy & Research, says the new limit is expected to cost banks about $6.6 billion in revenue a year, on top of a $5.6 billion annual loss from the 2010 rules requiring banks to refrain from charging debit-card overdraft fees unless a customer opts into a program authorizing the bank to pay point-of-sale overdrafts rather than simply declining the purchase.
Some commentators have assumed, oddly, that banks can simply replace the revenue by charging for the transactions in other ways. That was the argument the banks used throughout the debate over the Durbin amendment: If we can't take this money as a transaction tax from the merchants (OK, they didn't use the word tax, but that's what is is), then we'll take it directly from our customers in higher fees.
Thankfully, that's not how competitive markets work. Banks may try to raise their fees to recoup the lost transaction revenue, as Bank of America is doing, but if they price their services too high, some customers can and will go elsewhere, or at least quit using their debit cards.
Last month, the trade publication Digital Transactions, also citing Javelin, said 60 percent of respondents to a 2010 survey "said any monthly debit card fee would cause them to switch to another payment form."
The latest round of fee increases is an opportunity to weigh the value you get from using debit card for transactions.
Is it worth $60 a year to have the money taken directly from your checking account, rather than using a no-annual-fee credit card and paying it off in full each month? If you're worried that you'll inevitably start rolling over balances and building unwanted debt, it might be.
Would you rather pay cash for small transactions? If you don't like carrying money, or want an electronic record of every purchase, maybe staying cash-free is worth $60 a year to you.
Shop around, and you may find some surprises. For instance, to compensate for not having a huge network of ATMs, one of Bank of America's key competiive advantages, some small banks offer to absorb some costs of out-of-network withdrawals. In my neighborhood in Northwest Philadelphia, Valley Green Bank says it offers up to four out-of-network transactions per month to "free checking" customers. Some larger banks may eschew debit-card fee increases in an effort to capture a larger share of customers.
If you're thinking of switching, Consumers Union offers advice here, including a link to a PDF guide on how to change banks smoothly in an era when many people rely on preauthorized debits to pay key bills.
The biggest result of the new rules isn't higher debit-card fees. It's transparency: Banks, in concert with network owners Visa and MasterCard, had been charging merchants for transactions, and merchants had been building those costs into their own pricing decisions. Now banks can't charge as much - or, if they believe they can, they'll have to do so more directly.
Even so, banks, like retailers, can only charge what the market will bear. So the key question now is: What will Bank of America's customers do?
While my local credit union doesn't have the ATM network of BofA, or others, they will be my fallback. Oh yeah, thanks Durbin, Frank and Dodd.— jimmymack- Durban frank and Dodd - the people trying to rein in the banks.
While the repubs tks to bush have supported the deregulation that gave us the second great repub depression.
Tnes of millions in bonuses and salaries for the corporate nobility while almost 10 million of us ordinary folks have lost their homes or are in default on payments.
I'm not. I was lucky = my Dad won the state lottery for several million. He helped my whole family pay off the mortages.
What are your chances of such luck? Its time we all voted democratic - at least they have some empathy for the ordinary citizens - blue or white colar - among us.— Stan James - Hello Jeff....you don't think all the other scummy banks will follow suit....please.... they all belong to the same club...."fleece them if you can" and they all are trying to gain funds as they lost so much from thier self created bogus failed products and investments of 2007 and 2008.....— nuggett
Maybe if we all became "old fashioned" and spent the money AFTER we had it we would all be better off and so would the economy. If you need a credit card for emergencies, your credit union is the place to go first.- How about voting out Senator Casey who voted for this bill? He helped to push it through when they owned Congress so they could extort campaign money from large retailers and the banks. This is the Liberals idea of taking care of the working folks - it wont be charged to those of us who maintain balances, just to poor people. You can blame the banks, but they are just doing what Congress told them to do.— Beethoven987
- Why is this even an issue for Congress to regulate. The banks should be able to charge the merchants and/or the customers for using a debit card or a credit card as they choose. The merchants should be able to do the same thing. If you do not want to do either, pay cash or write a check. If the merchant does not want to pay the banks fees, then do not accept that credit card. This is another example of Congress getting involved in things that it should stay out of and let market forces decide.— rtronce
- Nuggett has the right idea. Don't be brainwash by the GOP and Faux News. The Fed watered down the Durbin amendment, raising interchange from 12 cents to 24 cents. Banks are looking for fee income to cover their losses on bad mortgages and derivatives and blaming DEMS, who are looking out for small business and retailers. I switched to a credit union 20 years ago because I worked in banking for years and know they have a fee for everything and overpaid executives.— damnels
- Thank you Barney Frank! Once again your endless interference to attempt to protect stupid consumers against themselves is costing consumers with at least a half of a brain more cash....and I am sure the 30,000 lower level employees who got laid off from Bank of America 2 weeks ago are just in love with Barney Frank's complete & systematic destruction of the financial industry. Thank you Barney Frank! Dummy.— kelprod2
- wow are you confused sir. The banks are fleecing the consumers left and right. And you blame Barney Frank etc for trying to regulate these crooks.
BTW in the 1960s the we had the REIT disaster
In the 1980s the S&L disaster
In the 1990s the junk bond disaster
about 2000 the runaway internet bubble wall street disaster
The latest collapse is all due to the same bank people who run wall street also
Most, though not all, republican.
My guess is your complaints are actually based on hatred of Barney because he is one of our gay friends and neighbors.
Its really sad how you think..........— Stan James - Swich to a credit union and put thesew crooks out on their ears!!
We ar no longer a democracy...we,ve become a corporate oligarchy ( corporatocracy)— nonymuss - Huge, national banks have no souls... That's why I bank with a local bank in South Jersey (Franklin Bank) that doesn't charge me for ATM withdraws like TD Bank does and I am sure they will not be charging me to use a debit card, because they're already making money off the vendor for each transaction processed.
If they do start charging, I'll gladly go back to using cash. It's my money, why should I pay someone else to use it?— andygradel - Why should anyone have to pay for using their own money? It's not as though the banks don't make interest on these accounts. The idea behind a debit card is to keep you from spending money you don't have. The best reaction to BoA's fees is to stop banking there and change institutions.— gb
- the same scum who gave us the almost second great depression.............
They want to charge you more and more for using YOUR OWN MONEY. To hell with them.
And if you vote republican, you are supporting the people fleecing you left and right. Dems are far from perfect but they generally do have the interests of the common person ahead of the corporate nobility.— Stan James - The typical American will moan and groan and gripe till they turn blue, but then simply take it. Quote - sjtom
And we all know what they mean by "Take it" My way of referring to an unprintable word to describe what the banks have been and are doing to the former middle class.
Chekc with USAA in San Antonio TX. If you were mil or have a mil relative, you may be eligible to join
Their credit cards are free. I get over 1% back each year - last year over $300. Interest rates if you dont pay in full ea month only 6-7 % instead of up to 30% to keep the repub corporate nobility in their multi - tens of millions of bonuses
Our entire family has them for banking, insurance etc. Also conservative mutual funds. Been there 48 years.
The real beauty - 90% of the time when you call you get an immediate help from a real person. the other 10% 1-2 min wait.
And the help is there to help you, not stand between you and solutions to problems.— Stan James - Let's do the math. At an average of $0.20 per transaction, the break even for $60 a year is 300 transactions, or 25 transactions per month. This means that BofA is doing better than before the new regulations for customers that have fewer than transactions a month.
On the consumer side, now you get to pay $60 a year in addition to what you'd normally pay for your purchases, because businesses are unlikely to reduce their prices; they just make a little more profit on each transaction.
Once again the republicans have succeeded in helping the banks and corporations at the expense of consumers, and they dare to call it an act of consumer protection.— Richard999
Reach Jeff at jgelles@phillynews.com.
