Federal rules restricting debit-card swipe charges have
led to US banks looking for ways to make up for lost revenue, with
Chase, Wells Fargo and most notably Bank of America charging
monthly fees to debit cardholders. But the demise of US free
checking is greatly exaggerated, reports Charles
Davis.
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The first shots across the consumer bow in the wake of the
Durbin Amendment caught no one by surprise, but created instant
reverberations across the US retail banking landscape.
Bank of America (BofA), citing the
new caps on interchange rates, announced plans to charge debit card
users a $5 monthly fee, beginning in January 2012.
BofA joins SunTrust ($5 a month for
all debit transactions) and Regions Financial (Regions customers
will be charged $4 per month for using its debit cards for non-ATM
transactions) in issuing bank wide debit card fees, while Wells
Fargo and Chase both began experimenting with $3 fees that are
waived if a customer uses the card only for ATM withdrawals.
“We strongly support the goals of
transparency and consumer choice,” said Anne Pace, a BofA
spokesperson.
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By GlobalData“We discontinued overdraft fees on
everyday debit card purchases which resulted in the loss of
billions of dollars in revenue.”
BofA customers will pay a minimum
of $13.95 monthly for the bank’s most basic account.
“New regulations on debit card
interchange fees – which provide no apparent benefit to consumers –
will further reduce revenue by additional billions of dollars,”
Pace said.
“Our new fee structure will restore
a portion of that lost revenue through clear and transparent
pricing, and help us to continue providing secure and efficient
methods of payment for our customers that includes fraud protection
and access to thousands of ATMs and millions of retailers.”
Citi went at it another way,
heralding its promise not to charge customers for debit
transactions even as it began informing some of its customers that
it will begin charging them $15 per month unless they maintain a
balance of at least $6,000 on one account the bank is trying to
close down.
It also raised the fees on its
basic checking account to $10 per month, from $8, unless customers
maintain a $1,500 balance or regularly use it for direct deposit
and online bill payments.
The new debit fees have generated a
tremendous outcry, but other bankers sense a competitive
opening.
Arvest Bank, a regional lender
based in Arkansas, quickly followed the BofA announcement with its
own statement telling customers it will not charge a debit card
fee.
Mark Larrabee, president of the
Kansas City, Missouri region of Arvest, said the bank not only will
hold the line of debit fees but has lowered the cost of overdrafts
from $17.90 to $17.
“We have always been a low-cost
service provider, so we saw a way to really differentiate by
keeping free checking and trying to migrate customers to a fee
structure for more advanced products,” Larrabee said.
“We are staking our claim as a
high-value provider. We are swimming upstream on this, but we see
the value in long-term customer relationships.”
Larrabee said that the onset of monthly debit card fees by
the biggest issuers offers banks like Arvest an opportunity to
“out-big the bigs and out-small the smalls” by offering all the
bells and whistles and convenience of the big banks while still
providing local, high-touch service.
“The Bank of Americas and Wells of
the world can’t do this,” Larrabee said. “They can’t take the hit
on the debit side.”
Online lender Ally Bank offers free
checking accounts with no minimum balance. It does not charge a
debit card fee and has no plans to levy one, a spokesperson said.
ING Direct also offers free checking and no debit card fees.
Co-op Services Credit Union in
Michigan may be the finest example of channeling the populist
outrage around the fees: the credit union will hand $105 to any new
customers who publicly shred their old debit card and opens a new
account, with a free debit card.
David Bellinger, director of
payments at the Association for Financial Professionals, said that
banks issuing the fees may very well infuriate some customers, but
eventually they must explain their case to the public.
“What BofA is doing is rational,”
Bellinger said. “They need to raise revenue, and if they price
their debit card higher, they are making a calculated bet that
people are going to eat it, or move more transactions to credit
cards.
“If enough customers start moving
away, they’ll move pretty quickly back on it.
“Ultimately, they must demonstrate the value of debit cards so
consumers sense they are paying for something,” said Bellinger.
