NEW YORK (The Blaze/AP) — Bank of America plans to start charging customers a $5 monthly fee for using their debit card to make purchases. The fee will be rolled out starting early next year.
A number of banks have already either rolled out or are testing such fees. But Bank of America’s announcement carries added weight because it is the largest U.S. bank by deposits.
Anne Pace, a Bank of America Corp. spokeswoman, said Thursday that customers will only be charged the fee if they use their debit cards for purchases in any given month. Customers won’t be charged if they only use their cards at an ATM.
The fee will apply to basic accounts and will be in addition to any existing monthly service fees. For example, one of the bank’s basic accounts charges a $12 monthly fee unless customers meet certain conditions, such as maintaining a minimum average balance of $1,500.
A fee for using debit cards is still a novel concept for many consumers and was unheard of before this year. But there are signs it may soon become an industry norm.
SunTrust, a regional bank based in Atlanta, began charging a $5 debit card fee on its basic checking accounts this summer. Regions Financial, which is based in Birmingham, Ala., plans to start charging a $4 fee next month.
Chase and Wells Fargo are also testing $3 monthly debit card fees in select markets. Neither bank has said when it will make a final decision on whether to roll out the fee more broadly.
“I might use all cash. Or go back to writing checks,” he said.
The debit card fee isn’t the only unwelcome change for checking account customers are seeing either. The banking industry has been raising fees and scaling back on rewards programs as they adjust to new regulations that will limit traditional revenue sources.
Starting Oct. 1, a regulation will cap the fees that banks can collect from merchants whenever customers swipe their debit cards. Those fees generated $19 billion in revenue for banks in 2009, according to the Nilson Report, which tracks the payments industry.
There is no similar cap on the fees that banks can collect from merchants when customers use their credit cards, however. That means banks may increasingly encourage customers to reach for their credit cards, reversing a trend toward debit card usage in the past several years.
An increasing reliance on credit cards would be particularly beneficial for Bank of America, which is a major credit card issuer, notes Bart Narter, a banking analyst with Celent, a consulting firm.
“It’s become a more profitable business, at least in relation to debit cards,” Narter said.
This summer, an Associated Press-GfK poll found that two-thirds of consumers use debit cards more frequently than credit cards. But when asked how they would react if they were charged a $3 monthly debit card fee, 61 percent said they’d find another way to pay.
If the fee were $5, 66 percent said they would also change their payment method.
Bank of America’s debit card fee will be rolled out in stages starting with select states in early 2012. The company would not say which states would be affected first.
Bank of America shares rose 9 cents, or 1.5 percent, to $6.25 in afternoon trading.
h/t to the Blaze
On Sat., Oct. 1, new regulations from the Dodd-Frank financial overhaul go into effect on debit cards. Specifically, they impose price controls on “interchange fees,” the fees that banks and credit unions charge to retailers on debit card transactions.
The average interchange fee is about 44 cents. The new rules limit the fees to 21 to 24 cents.
“The costs of processing debit card transactions doesn’t go away because you limit the price,” said John Berlau, director of the Center for Investors and Entrepreneurs at the libertarian Competitive Enterprise Institute. “That shifts the costs to consumers.”
These fees are used by banks to offer free checking and rewards programs. But now those programs may be be coming to an end. Just 45% of noninterest checking accounts are now free, down from 65% last year, according to a recent survey by Bankrate.com. The average monthly fee for those accounts has risen 75% in
the last year to $4.37.
Bank of America (BAC) just announced a $5 monthly fee for debit cards, starting early next year. BofA cited regulatory costs. Wells Fargo (WFC) and Chase (JPM) has experimented with $3 fees in some markets. Earlier in the year, SunTrust (STI) bank ended its debit card reward program.
Berlau notes other consequences:
Much of these costs will be transferred to consumers in terms of loss of free checking and debit card rewards, new charges for using an ATM, and other fee hikes and service cuts. In its rule, the (Federal Reserve) almost invited banks and credit unions to do this, “helpfully” pointing out that “the interchange fee standard would not limit the ability of an issuer to earn revenue from other sources, such as charging fees to cardholders.”
And there may be other nasty surprises, such as job losses. A Wall Street Journal editorial blamed at least part of the 40,000 Bank of America job losses on the loss of revenue due to the Dodd-Frank price controls. And late last week, Texas-based International Bancshares announced that due to the revenue loss from the price controls, it was closing 55 branches in grocery stores and shedding 500 jobs.
Even retailers may not get the full benefit they are expecting. According to one article, debit card processors can charge an additional fee when merchandise is returned, and that fee may not be covered by the regulations. Processors also may charge flat fees on transactions rather than a percentage-based fee, meaning retailers may pay more on small sales. Expect more processors to do that as the regulations take hold.
By David Hogberg – Thu., Sept. 29, 2011 11:30 AM ET – Capital Hill – h/t to Jean Stoner