Bank of America’s $5 Monthly Fee on Debit Card Use



Bank of America’s $5 Monthly Fee on Debit Card UseOn September 29, Bank of America announced it would begin charging its customers a $5 dollar monthly fee ($60 annually) for customers to access their own money in their checking accounts through the use of a debit card. Banks claim that they are forced to raise consumer fees in response to the Wall Street reform bill enacted in July 2010. But banks like Bank of America were raising consumer fees long before then. The justifications change, but the pattern is the same -- fees keep going up. October 27, 2008 - “Rising bank fees are setting records” – USA Today November 12, 2008 - “Banks Boost Customer Fees to Record Highs” - Wall Street Journal May 28, 2009 - “Banks Find Ways To Boost Fees; Checking Accounts Latest Target” - USA TodayJuly 1, 2009 - “Bank Fees Rise as Lenders Try to Offset Losses” - New York Times July 19, 2009 - “Why Are Banks Raising Fees?? As Citigroup and Bank of America Post Huge Profits, Why Are Bank Fees Going Up?” – CBS News November 19, 2009 - “Checking Account Fees Are Making a Comeback” - SmartMoney January 4, 2010 - “Banks Eye New Fees, Revenue in 2010” - May 18, 2010 - “Banks return to charging credit card, checking account fees” - USA Today Banks claim that debit swipe fee regulation is forcing them to raise consumer fees. Not true. Consumer debit fees are not universal. Many small banks and credit unions and even one giant bank, Citibank, have announced that they will not charge debit fees to their customers. Consumers will have options to take their business to banks that value their customers more. The Fed’s rates: Under the Fed’s final rule issued in July, the average amount of big bank debit interchange fees will decrease from 44 cents per transaction to 22 cents plus 0.05% of the transaction amount (for an average total of around 24 cents). This will mean an estimated $5 to $12 billion per year in savings for merchants, universities, doctor offices, and governments, and these savings will be passed to consumers through price competition and discounts. Costs are more than covered: The Fed found in December 2010 that it costs a bank 7 to 12 cents to process a debit transaction, and the Fed’s final rule generously allows banks to receive about 24 cents. Banks are already easily clearing their costs, with generous room for profit. Banks that are charging new consumer debit fees are trying to make further profits off of debit transactions rather than to cover costs.? Regulation begins October 1: Everything from lay-offs to this new debit card fee has been blamed on the Durbin amendment, before the regulation had taken effect. Reform was necessary. Big banks have made enormous profits from the swipe fees that merchants pay banks on debit transactions.? The banks have let Visa and MasterCard fix the swipe fee rates that all banks receive, and this duopoly has kept fees inflated far in excess of debit costs with no negotiation or competition.? Congress stepped in to address this rigged system, and on October 1 the Fed’s rule will take effect requiring that the debit interchange fees fixed on behalf of big banks must be reasonable and proportional to the cost of conducting the transaction. This reform will help consumers save money on groceries and gas and will give job-creating small businesses a break from unfair fees.Reform will create a transparent, competitive market environment. Fortunately, transparency and competition will keep new consumer fees in check. As opposed to interchange fees which are hidden from consumers and fixed by Visa and MasterCard on behalf of all banks, these new consumer fees are transparent and consumers will respond by taking their business to other banks that do not pad their profits through fees. Also, we now have a Consumer Financial Protection Bureau to protect consumers from unfair or deceptive fees.Big banks claims that regulation is causing the end of free checking for consumers. But even Bank of America’s spokeswoman has admitted that checking was never free and that consumers were always paying for it one way or another. (“Customers never had free checking accounts," Bank of America spokeswoman Anne Pace said. "They always paid for it in other ways, sometimes with penalty fees.” ). Now financial reform is bringing these hidden and deceptive fees into the light, where competitive pressure will hold them in check. Bank of America’s debit fee is likely an effort to push BofA customers to use credit cards more, since credit card swipe fees remain unregulated and are higher than debit fees. However, last year’s swipe fee reform also contained a provision enabling merchants to discount for debit verses credit, which will help counteract this effort. ................
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