Bank of America is the latest financial institution to jump on the debit usage fee bandwagon. Chase and Wells Fargo are piloting $3 fees in some states, while SunTrust and Regions already have fees of $5 and $4 respectively. BofA’s new fee will target its lower-tier members; those with premium checking accounts won’t have to pay. Starting sometime next year, standard checking account customers will have to pay $5 every month that they use their debit cards.
(By the way, if you’re sick of reading about these gosh-darn fees, read our roundup of checking accounts that aren’t trying to screw you over.)
This is, of course, an effect of the Durbin Amendment, which takes effect on Saturday. It will cap the swipe fee on the average debit transaction from 44 cents to 24. Banks are projected to lose $6.6 billion in interchange fees, and so have complained mightily to every branch of government willing to lend an ear.
Most banks have already priced in the Durbin’s chilling effect on debit interchange revenue, as seen by Chase’s recently departed rewards program, free Wells Fargo-nee-Wachovia accounts becoming un-free, and the steady climb of monthly maintenance fees. Consumers are already losing money as a result, and NerdWallet has lost seemingly hundreds of man-hours covering the latest bank to change its debit program.
Recouping lost revenue
Effective sometime in 2012, Bank of America will levy a $5 monthly charge on all its basic checking account customers unless they abstain from using their debit cards for purchases (ATM transactions will not trigger the fee). This is on top of their monthly maintenance fees, which range from $8.95 on the eBanking account to $12 on the MyAccess account. Those fees can be waived by going entirely self-service and online (eBanking) or maintaining an average daily balance of $1,500 or making a direct deposit of $250 or more (MyAccess).
The reaction from BofA customers, as you might imagine, was less than positive. They’re threatening to switch banks or steer clear of debit transactions altogether. A host of new research suggests that the latter is likely: the Federal Reserve published a study showing that higher debit costs encourage credit card use, while an AP-GfK poll found that two-thirds of debit users said a $5 fee would be enough to make them avoid debit. The alternatives sound less than appealing: credit cards, which could incur interest payments; cash, which is unwieldy and easy to lose; and prepaid debit cards, whose heavy hidden fees can make them even pricier than these new checking accounts.
Now, some might lead you to believe that debit usage fees are all but inevitable. They’re not, just like free checking is not a utopian fantasy. Many major national banks are indeed testing or implementing the fees. But that’s hardly everyone. The startup-like PerkStreet checking account not only doesn’t have monthly and debit usage fees at all, it actually gives 1-2% rewards on your debit purchases, which is kind of the opposite of BofA. Capital One has an interest-bearing, entirely free online checking account. And most credit unions offer free, interest-bearing or even rewards checking, because as small institutions they’re exempt from the Durbin Amendment fee cap. Finally, for-profit online banks can avoid the rent, insurance, maintenance, staffing and pension costs that go along with brick-and-mortar branches, and often pass some of those savings along in the form of rewards.