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Bank of America Rethinking Controversial Debit Card Fees

Forbes
Bank of America Rethinking Controversial Debit Card Fees
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Bank of America Rethinking Controversial Debit Card Fees

Bank of America is reconsidering its plan to charge $5 monthly debit card fees after public outrage has caused several other large banks to drop their own plans to charge similar fees.

Bank of America is reconsidering its controversial move to charge monthly debit card fees after a wave of other big banks have dropped the idea. JP Morgan Chase and Citigroup as well as several other major banks have all shied away from the fees which have sparked widespread consumer anger.

Transparent fees are important for customers, and too often consumers of credit cards and other financial services are hit with hidden fees they never even know about. Swipe fees have long been the hidden cost in many consumer purchases. These hidden fees are charged directly to retailers whenever someone uses a debit card, and that cost is passed on to customers. The recent Dodd-Frank financial reform bill placed a cap on how high these swipe fees could be, a move which could cost banks billions of dollars in lost revenue. Billions more will be lost due to caps on overdraft fees.

To replace this revenue stream, Bank of America opted for a new monthly fee for all debit card users, and suddenly the cat was out of the bag. Everyone had already been paying these fees, they just didn't know it. After financial reform, those fees were upfront: they were transparent and open to criticism. And Bank of America's customers were furious. They were angry enough to scare off most of the other large banks, and the anger even helped fuel the current Occupy Wall Street protests.

Greedy banker took on a whole new meaning - again. After the financial crash of 2008 and the unpopular bailouts, the last thing banks need is an unpopular debit fee program, which makes the move all the more inexplicable.

Critics of the fees included many politicians and consumer advocates. Even president Obama denounced the fees. Rep. Dick Durbin, whose amendment to the Frank-Dodd bill is responsible for the swipe fee caps, said he hoped Bank of America customers would "have the final say."

"It's time for Bank of America to listen to its customers who are saying loud and clear, 'Drop the fee or we'll drop you,'" Norma Garcia of the Consumers Union said in a statement. "All banks that are considering debit card fees should ditch those plans." Apparently Bank of America is listening.

Under the still vague new plan, Bank of America customers who hold Bank of America credit cards, directly deposit wages into the bank or hold a minimum balance will not be charged a fee. Whether that balance will still be the whopping $20,000 remains to be seen, but it appears likely that the bank will lower that amount. At this point no firm details are available.

Wells Fargo has similarly scrapped plans to start charging a $3 monthly fee. However consumers should expect these banks to come back with other ways to make up for lost revenue, and not all of them will be so obvious as the debit card fee fiasco. According to the Wall Street Journal:

On paper, freedom from debit-card fees won’t be a cheap decision for the big banks. J.P. Morgan, for example, has said new regulations limiting “swipe fees” for each debit-card transaction will cost J.P. Morgan $1 billion a year in gross revenue. Wells Fargo recently disclosed it expects a $250 million after-tax hit to quarterly income, “before the impact of any offsetting actions.”

Notice that J.P. Morgan stipulates this lost money is gross revenue. Notice that Wells Fargo leaves wiggle room for “offsetting actions.” Yes, in the grand tradition of banking fee Whac-A-Mole, punching down fees in one part of your account may result in fees popping up in another part.

In a recent statement, Dan Geller of banking-research firm Market Rates Insight said separate rules limiting banks’ overdraft and ATM fees will have the opposite effect on consumers’ wallets in other ways.

“Whatever consumers saved on overdraft and ATM fees, they lost in lower interest rates on deposit partly done to offset lower fee income,” Geller said in the statement.

It’s fair to assume banks will find new ways to cushion the debit-fee blow, too.

This is also the trouble with financial regulations more broadly. Every new regulation leads to a new attempt to find loopholes. The more transparency the better, but it's impossible to say whether future efforts to recoup costs will be nearly as transparent as this one.

Many consumers have already fled to local banks and credit unions to avoid the fees. If this becomes a trend, perhaps the too-big-to-fail banks will eventually shrink down to non-bailout proportions.

Probably not, but we can always hope.

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