Bank of America to Charge $5 Monthly Debit Card Use Fee

U.S. Consumers Get Swiped in Debit Fee Crackdown

September 30, 2011

Reuters - A government crackdown on debit card "swipe fees" is unlikely to benefit consumers' wallets, as banks seek makeup fees and retailers take the savings down to their own bottom line.

For months, retailers, card network companies and big banks brawled in Washington over the fees and even launched nationwide advertising campaigns. Consumers were often portrayed by retailers as the ones victimized by the billions of dollars in debit card processing fees that banks charge merchants.

On the eve of the mandated lower fees, it appears the skeptics who feared the measure would backfire on consumers were correct.

Bank of America said on Thursday it plans to charge customers who use their debit cards to make purchases a $5 monthly fee.

Representative Barney Frank, co-author of last year's Dodd-Frank financial oversight law, said he opposed including the crackdown in the legislation.

He said in an interview with Reuters on Friday that shoppers are unlikely to benefit.

"I regard this as mostly a dispute between two groups of businesses, banks and retailers, and the consumer gets squeezed," Frank said. "The banks will charge you more, and I don't think the retailers are going to charge you less, which is why I didn't want to put it in the first place."

Some retailers are not shy about plans to pocket the savings.

Dave Ratner, founder of Dave's Soda & Pet City chain in Massachusetts, said he will save thousands of dollars annually on swipe fees. Nearly 2 percent of his revenue currently goes to banks for debit and credit card swipe fees.

"This is just a huge relief and is getting back what is mine anyway," said Ratner, who noted that merchants have been powerless to negotiate processing fees with banks until now.

"My customers would laugh at me if I said, 'We are going to give you a dime off if you use a debit card.'"

Senator Dick Durbin, a Democrat from Illinois, led the charge to include the swipe fee limits in Dodd-Frank. He has maintained that the legislation will decrease prices for consumers and help small merchants struggling to meet processing fees that amount to about 400 percent of the processing cost.

Dodd-Frank called on the Federal Reserve to craft the limits, which set the stage for a massive lobbying campaign. Banks and card network companies tried to get the cap set as high as possible, while retailers pressed for a low cap.

The Fed capped "interchange fees" at an average of 24 cents per debit card purchase. The current average fee is 44 cents on a typical debit card purchase of $38.

That translates into a $6.6 billion annual hit to financial firms, according to an August study by Javelin Strategy and Research.

Javelin also noted that seven of the top 10 banks had announced plans to eliminate free checking and the so-called Durbin amendment has banks rethinking their customer services.

WINNERS, LOSERS

The writing was on the wall for consumers. A November 2009 report from the Government Accountability Office found that limiting swipe fees would be good for retailers but not necessarily for consumers.

The independent congressional watchdog found that it would be difficult to tell whether retailers were passing along any savings to consumers, and that consumers may face higher card use costs as banks made up for lost income.

"If you are a consumer, and you are caught in the middle of this, you are going to end up having to pay more as a result of this sloppy legislation for a debit card," said Trish Wexler, a spokeswoman for the Electronic Payments Coalition, which represents card networks Visa, MasterCard, and several large banks.

Retail trade groups are steadfast that the windfall for them will not necessarily be a loss for customers.

Mallory Duncan, senior vice president of the National Retail Federation, said merchants will likely pass on savings because their industry is so competitive.

"The average net profit margin in the retail industry is approximately 2 percent," said Duncan. "This reduction (in swipe fees) is another tool they can use to compete for customers."

Dave Koenig, a director at the National Restaurant Association, agrees.

"We do think that ultimately the consumer will get a reduction in prices just because of the competitive nature of the industry."

A recent survey from Direct Response Forum, an annual meeting of payment professionals, provided a different assessment. Its survey of 169 retail executives found that 41 percent of merchants said they won't pass on the savings, and 56 percent weren't sure.

Durbin is standing by the fee limits. He issued a statement on Thursday blasting Bank of America and touting the benefits of the rules once they go into effect on October 1.

"Small business and merchants will benefit from fee relief and consumers will benefit from lower prices," Durbin said. "And banks that try to make up their excess profits off the backs of their customers will finally learn how a competitive market works."

Bank of America to Charge Debit Card Use Fee

September 30, 2011

Reuters - Bank of America Corp plans to charge customers who use their debit cards to make purchases a $5 monthly fee beginning early next year, joining other banks scrambling for new sources of revenue.

U.S. banks have been looking for ways to increase revenue as regulations introduced since the financial crisis limited the use of overdraft and other fees.

The Dodd-Frank Act's Durbin amendment, due to go into effect on October 1, caps fees banks can charge merchants for processing debit card transactions at 21 cents per transaction from an average of 44 cents, potentially costing banks billions of dollars.

Banks also face broader operational challenges as low interest rates and higher capital requirements hit profitability, and the sluggish economy depresses loan demand.

Other large U.S. banks including Wells Fargo & Co, JPMorgan Chase & Co and SunTrust Banks Inc are testing or planning monthly debit card fees.

"The economics of offering a debit card have changed," Bank of America spokeswoman Anne Pace said on Thursday.

Bank of America is the largest U.S. bank by assets.

Senator Richard Durbin, architect of debit card interchange fee reform, bashed the proposed monthly fee.

"Bank of America is trying to find new ways to pad their profits by sticking it to its customers," he said in a statement. "It's overt, unfair, and I hope their customers have the final say."

A FEE TOO FAR?

Even before introduction of the Durbin amendment's rules on debit fees, Bank of America's fee income was dropping at its deposits and card services units. The bank's deposits unit reported fee income of $1 billion in the second quarter of 2011, down 34 percent from $1.5 billion a year before.

Card services, which includes the bank's credit and debit card operations, reported fee income of $1.9 billion, down 23 percent from $2.5 billion in second quarter 2010.

"This might be a fee too far," said Ed Mierzwinski, director of the consumer program for the U.S. PIRG, a federation of state public interest research groups.

Mierzwinski said such fees could push customers to smaller banks that have not introduced checking and debit-related fees.

Pace said customers expect certain features for their accounts, like overdraft and fraud protection, and the fee would offset some of those costs.

The fee will be waived for the bank's premium or platinum privileges accounts tied to its Merrill Lynch brokerage. It will also not be charged for using the card to access the bank's ATMs, Pace said.

She declined to say how much the bank expects to earn through these fees or how many customers would be affected.

Some banks have pushed back against debit fees. Citigroup Inc said earlier this month that it would not impose debit card usage fees as part of a broader account restructuring.

The head of banking products for Citi's U.S. consumer bank said customers had told the bank that a debit card fee would be "a huge source of irritation."