Wells Fargo and Chase are testing $3 monthly debit card fees. Regions Financial, based in Birmingham, Ala., plans to start charging a $4 fee next month, while SunTrust, another regional powerhouse, is charging a $5 fee.
The round of new charges stems from a rule, which takes effect on Saturday, that limits the fees that banks can levy on merchants every time a consumer uses a debit card to make a purchase. The rule, known as the Durbin amendment, after its sponsor Senator Richard J. Durbin, is a crucial part of the Dodd-Frank financial overhaul law.
Until now, the fees have been 44 cents a transaction, on average. The Federal Reserve in June agreed to cut the fees to a maximum of about 24 cents. While the fee amounts to pennies per swipe, it rapidly adds up across millions of transactions. The new limit is expected to cost the banks about $6.6 billion in revenue a year, beginning in 2012, according to Javelin Strategy and Research. That comes on top of another loss, of $5.6 billion, from new rules restricting overdraft fees, which went into effect in July 2010.
And even though retailer groups had argued that lower fees were important to keep prices in check, consumers were not likely to see substantial savings. In fact, they are simply going to end up paying from a different pot of money.
Or as Jamie Dimon, chief executive of JPMorgan Chase, put it after passage last year of the Dodd-Frank Act, “If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger.”
Chase is now charging customers for a paper statement. It also, like many other banks, scrapped its debit card rewards program. And customers that Chase inherited from Washington Mutual no longer enjoy free checking accounts.
The bank is also exploring a number of other fee increases, including for online banking, according to people with knowledge of the matter.
Bank of America’s debit fee is steeper than most of its competitors’, reflecting the broader challenges the bank is facing after the financial crisis. The bank has introduced an online-only account that charges customers for doing business at a local branch. It also plans to apply its new debit card fees to anyone who uses the card to make recurring payments like gym fees or cable bills.
Citibank is one of the few that said it would not introduce a charge for debit card use. “We have talked to customers and they have made it abundantly clear that ‘if you charge me to use my debit card, I would find that very irritating,’ ” said Stephen Troutner, head of Citi’s banking products. Still, the bank has made it more difficult to qualify for free checking, among other moves.
Earlier this year, Wells Fargo estimated that the Durbin rules would cost the bank $250 million in revenue every quarter. It hopes to make up half that gap with a variety of new products and customer fees, including the monthly debit card fee of $3. The change is part of a “pilot program” the bank will begin on Oct. 14 in five states across the country, including Washington and Georgia. As of Saturday, the bank will discontinue its debit card rewards program.
Meanwhile, HSBC said that it recently increased an A.T.M. fee — to $2.50 from $2 — for certain customers when they used a competitor’s A.T.M. It also recently introduced a debit transaction fee of 35 cents, though the first eight transactions are free.
And at TDBank, customers will now have to pay $2 for using A.T.M.’s outside their network.
“Durbin essentially moves the cost of debit away from merchants, and now it’s more focused on consumers,” said Beth Robertson, director of payments research at Javelin. “There are all sort of things happening where banks are saying, where can we put fees in place for our service to generate revenue or how can we reduce our costs?”
Over the last few years, consumers have increasingly shifted their spending to debit cards from credit cards, in large part to curb their spending. But some analysts predicted that the new fees could prompt consumers to return to credit cards — a more lucrative alternative for the banks.
Consumers have already begun to react to the changes.
Patrick Shields, 48, said he had decided to leave Citibank, where he has held a small-business account for his residential window cleaning business since 1986. He was contemplating opening a personal checking account, but realized he could do better at a credit union.
“At the credit union, they opened it free of charges, which Citi could not and would not do,” said Mr. Shields, who noted that a personal checking account would have cost more than the one he uses for his New York business. “Now I have both accounts covered, and I am fee-free.”
The so-called Durbin rule quickly emerged as one of the thorniest provisions of Dodd-Frank, touching off a long and furious fight in Washington. Wall Street dispatched an army of lobbyists to tame the rule, ultimately yielding mixed results.
In June, the Senate defeated a measure that would have delayed the new rule. But just three weeks later, the Federal Reserve decided to cap the fees at 21 to 24 cents for each debit card transaction, a much lighter blow than once expected.
In a statement on Thursday, Senator Durbin, Democrat of Illinois, said that small businesses would benefit from the new limits. “Swipe fee regulation will still allow banks to cover the actual costs of debit transactions but will rein in the banks’ excessive profit-taking.”
Ann Carrns contributed reporting.
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