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Bank of America Drops Plan for Debit Card Fee

November 2, 2011 by Leave a Comment

The bank, the nation’s second-largest, said it was abandoning its plan to charge customers a $5 fee to use their debit cards for purchases. Only a month earlier, the bank had announced the new charge, immediately setting off a huge uproar from consumers.

Despite an outpouring of complaints online and at branch offices, the bank had remained steadfast in its plans until last Friday, according to a person briefed on the situation, planning to ease just some of the conditions for avoiding the fee. But over the weekend, after two major competitors — Wells Fargo and the nation’s largest bank, JPMorgan Chase — said they were backing away from their plans to levy similar charges, two high-ranking Bank of America officers recommended to Brian Moynihan, the bank’s chief executive, that the bank simply drop the fee.

Then, on Monday morning, when SunTrust, a regional bank in Atlanta, said that it, too, would abandon its $5 charge, Bank of America was left standing alone, the last major bank planning the fee. The announcement came on Tuesday.

“We have listened to our customers very closely over the last few weeks and recognize their concern with our proposed debit usage fee,” David Darnell, co-chief operating officer at Bank of America, said in a statement. “As a result, we are not currently charging the fee and will not be moving forward with any additional plans to do so.”

The revenue the bank expected to raise from the debit fee was not worth the damage to its reputation, the person briefed on the matter said.

The bank never disclosed how many of its customers would have been affected by the fee. It also declined on Tuesday to comment on how many had closed their accounts after the original announcement, but sources close to the bank said that account closures were higher than usual. And smaller institutions like PerkStreet said that their account acquisition rate had spiked in the days afterward.

Besides Wells Fargo, JPMorgan Chase and SunTrust, Regions Financial has also said it would roll back its debit fee as of Tuesday and reimburse customers for any charges incurred.

All along, though, Bank of America took the brunt of the criticism, and apparently, it was not just the debit fee that caused consumers to lash out. For Grace Anderson, of Madison, Wis., the bank’s recent decision to cut 30,000 job positions had prompted her to close a checking account. “I cannot in good conscience invite them into my house and my life,” she said, adding that she had moved her account to USAA, a federal savings bank.

The new fees were part of an effort by the banks to raise revenue lost elsewhere. On Oct. 1, a new federal rule went into effect that limits the fees banks can levy on merchants every time a consumer swipes a debit card to make a purchase. 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 were widely seen as onerous and went into effect in July 2010.

Now that all the large banks have decided not to impose the debit fee, experts said, they will find other ways to fill the hole. “Those revenues paid for a lot of things,” said Joe Gillen, chief executive of Pinnacle Financial Strategies, a bank consultant in Houston.

Now, he said, consumers can expect more fees over time. “It will be slow and gradual, but they will bring those revenues back,” Mr. Gillen said.

What he said was most frustrating, however, was that the banks were penalized for their openness. The fees the banks were trying to replace — the so-called swipe fees — were not readily apparent, even though all consumers were ultimately paying them in higher costs at the cash register. Now, Mr. Gillen said, the banks “are going to have to hide the fees and the customers will still have to pay them.”

But those customers may have found their voice, which has been amplified by social media. “People can now use tools like Change.org, Facebook and Twitter to rapidly organize and collectively act to influence the policies of even the largest companies,” said Ben Rattray, founder of Change.org, which allows consumers to start grass-roots campaigns using its online platform.

He pointed to Molly Katchpole, a 22-year-old woman from Washington who collected more than 300,000 signatures opposing the fee by using his company’s platform. And then there is the grass-roots effort that is calling for this coming Saturday to be “Bank Transfer Day,” where customers of big banks move their accounts to community banks and credit unions.

Mr. Rattray and other consumer advocates said the outcry was about much more than fees. “Bank of America’s new debit card fee was the last straw for many consumers who are tired of banks that got bailed out that are now turning around and hiking fees,” said Norma Garcia, manager of Consumer Union’s financial services program. “There was this phenomenon with banks and others confusing passivity with loyalty. And consumers are saying, ‘You can’t take us for granted anymore.’ ”

Lawmakers also openly criticized Bank of America’s planned fee. Days after the bank announced that it would charge the fee, President Obama said customers should not be “mistreated” in pursuit of profit, while Vice President Joseph R. Biden Jr. called the move “incredibly tone deaf.” And Senator Richard J. Durbin of Illinois, the No. 2 Senate Democrat, spoke out on the Senate floor, urging consumers to vote with their feet. He had sponsored the rule, known as the Durbin amendment, that limited the amount banks could charge for debit card transactions.

On Tuesday, he took to the floor again. “What we have at work here is a very fundamental principle of our economy, the free market economy, transparency,” he said. “So people know what they are being charged. So they have a choice.”

This article has been revised to reflect the following correction:

Correction: November 1, 2011

Because of an editing error, an earlier version of this article incorrectly referred to Bank of America as the nation’s largest bank. JPMorgan Chase has overtaken Bank of America in assets, according to third-quarter results released in October.

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Banks to Make Customers Pay Debit Card Fee

September 30, 2011 by Leave a Comment

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.

Article source: http://feeds.nytimes.com/click.phdo?i=e80bab34b09db2eafb2ad4dec6e3d0a4

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Bucks Blog: Banks Adding Debit Card Fees

September 29, 2011 by Leave a Comment

Michael Stravato for The New York TimesA customer pays by swiping a debit card.

Starting Saturday, big banks must comply with a new regulation that caps the fees they can charge merchants for processing debit card purchases. But some consumers are already seeing the impact of the change, in the form of higher fees charged on their checking accounts, as banks seek to recoup lost revenue.

Bank of America is the latest bank to say it will begin charging a monthly fee for checking accounts that use debit cards. Starting early next year, the bank will charge $5 a month, in any month that the customer uses a debit card to make a purchase. (If customers have a debit card, but don’t use it, they won’t incur the fee). The fee won’t apply to A.T.M. transactions, and it won’t be charged to customers with certain premium accounts, a bank spokeswoman, Betty Riess, said. “The economics of offering a debit card have changed with recent regulations,” she said.

Bank of America joins banks including SunTrust and Regions in charging the fees. Other institutions, like Wells Fargo and Chase, are testing them, too. And over all, bank fees have crept up to record levels, a recent survey found.

The added fees have come even though the limit on the merchant fees wasn’t as low as banks initially had feared. (The Federal Reserve originally considered a cap of 12 cents, or half of what it finally set.)

While consumers are seeing the impact of the change in their bank accounts, any potential savings benefit at stores is likely to be muted. “I don’t expect there to be any visible effects at the cash register,” said Aaron McPherson, practice director for payments at IDC Financial Insights. When similar caps were implemented in Australia, he said, merchants there didn’t pass along savings, so it’s unlikely that will happen here either.

That’s because, retail groups say, stores aren’t going to benefit as much as they had originally hoped under the new cap, and some merchants may actually pay higher fees.

The Fed earlier this year lowered the average maximum “swipe,” or interchange, fee to roughly half of what it had been previously. (Shoppers don’t pay the fees directly; banks collect them from merchants on behalf of payment networks like MasterCard and Visa, which set the rates. The rates very depending on the type of merchant.)

Retail groups say the new cap is a “critical step” in reining in fees that contribute to higher prices for shoppers. But Brian Dodge, a spokesman for the Retail Industry Leaders Association, said the Fed, under pressure from banks, set a “deeply flawed” formula for the cap that will actually result in some retailers paying higher fees for small-dollar transactions — say, drinks sold at coffee shops.

The formula sets the cap at 21 cents, plus .05 percent of the transaction amount, plus another penny in certain cases, for fraud-control measures. That means the maximum fee on the average debit transaction of $38 will be about 24 cents, compared with 44 cents previously.

But the payment networks have indicated they will treat the cap as more of a floor in some cases, Mr. Dodge said. In short, he said, to help make up for lost revenue on big-ticket items, the networks will increase fees on smaller transactions, to bring them up to the new limit.

Retailers do retain some flexibility, he said, to steer customers away from more expensive forms of payment, like rewards credit cards, and toward less expensive methods. So consumers may eventually see some merchants, like gas stations, offer discounts for using a debit card, as some do now for payments in cash.

One impact is clear, said Paul Bragan of Wakefield Research, which has studied consumer opinion about the swipe fee debate: Consumers are much more aware of the process by which banks charge stores for the use of plastic cards, and are in favor of more disclosure of such fees. “They’re looking for greater transparency in the process, so they can understand how it will affect them,” he said.

If you see any signs of changed retail prices or bank fees, after Oct. 1, please let us know in the comments section.

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