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Debit Card Fees Charge Customers for Spending Their Own Money

New fees for debit card use increase bank revenue at customer’s expense

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America's banks are going to start making you pay to spend your own money.

Early next year [2012], Bank of America will begin collecting a $5 monthly fee from customers who use their debit cards to make purchases. These aren't credit cards, mind you, which essentially allow you to borrow money from the bank. These are debit cards, which simply transfer to a merchant some of the hard-earned money you already have in your checking or savings account.

Banks replace retailer revenue with customer charges
These are the same people you bailed out with your tax dollars after their institutional greed created a global financial crisis and brought the U.S. economy to its knees. Not satisfied with the billions of dollars you gave them back then, however, the bankers are asking you to help them again. How? By paying $5 to use your debit card, which the banks hope will make up for Congress forcing them to reduce the fee they are allowed to charge retailers for swiping your debit card, from 44 cents per transaction to about half that amount.

In a parody of this situation, comedian Andy Borowitz published in his Borowitz Report a fictional quote from the top executive at Bank of America:
"We would not exist today without the generosity of the American taxpayers," said CEO Brian Moynihan of Bank of America, which received billions of dollars of Federal bailout money. "And we want to thank them by assessing a special monthly 'thank you' fee on all of our debit cards."

Becoming emotional, Mr. Moynihan added, "We think of the taxpayers every time we vacation on our yachts or visit our third homes, and we want them to think of us every time they try to spend $20 on groceries."

That sums it up pretty well.

How the new debit card fee will work
Bank of America will charge $5 for any month in which customers use their debit card to make a purchase. The number of transactions doesn't matter. Make one $10 debit-card purchase, and you'll pay the $5 fee. Make 100 debit-card purchases, and the same $5 monthly fee applies.

Bank of America customers will still be able to use their debit cards at ATMs without incurring a fee. In addition, customers with premium accounts-those who have a mortgage with the bank, for example, or who keep $20,000 or more on deposit-will be exempt from the $5 charge. And the $5 fee will only apply in months when customers use their debit cards in lieu of cash or credit. No purchases, no fee.

This move by Bank of America is just the beginning. Wells Fargo, JP Morgan Chase and other big banks are expected to impose similar fees for debit-card purchases soon. Wells Fargo plans to test a $3 monthly fee in Georgia, New Mexico, Nevada, Oregon and Washington beginning October 14, and Chase is already testing a $3 monthly fee in Wisconsin. Big regional banks, such as Regions Financial and SunTrust, are also rolling out new fees for customers who make debit-card purchases. Regions Financial plans to start charging a $4 fee in October. SunTrust, like Bank of America, will charge a $5 fee.

Banks look for new revenue sources
The new restriction on how much banks can charge retailers for sales involving debit cards is expected to cost the banks about $6.6 billion in annual revenue, beginning in 2012, according to Javelin Strategy and Research. Another rule change restricting overdraft fees, which took effect in July 2010, is costing banks about $5.6 billion a year.

Banks have responded by raising customer fees and cutting services. Many banks have eliminated free checking accounts, or have made it much harder to qualify for the service. Others have raised interest rates and lowered credit limits on their credit cards, or started charging for paper statements. And banks everywhere are exploring the viability of imposing new fees for everything from online banking to ATM transactions.

Debit card fees hard on seniors and the poor
This is bad news for all consumers, but it's especially hard on the millions of seniors who are on fixed incomes and really can't afford to keep padding their bank's profits at the expense of their grocery budget.

Senator Dick Durbin (D-Ill.), who introduced the limit on retail swipe fees in an amendment to the Dodd-Frank financial reform act, said the new cap evens the playing field for retailers because the fees that Visa and MasterCard had set for banks "grossly exceed the cost of processing a debit card transaction by some 400 percent."

"After years of raking in excess profits off an unfair and anti-competitive interchange system, Bank of America is trying to find new ways to pad their profits by sticking it to its customers," Durbin said in a statement. "It's overt, unfair and I hope their customers have the final say."

What can you do?
One way consumers can fight back is to switch to a credit union or a small local bank. Only banks with assets of more than $10 billion are subject to the new rule that limits what they can charge retailers for accepting debit cards. Besides, credit unions are membership organizations that exist only to serve the financial needs of their members, and local banks often realize that customer service is their only real competitive advantage over the large financial companies.

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