Consumers have won this round in forcing big banks to trash their plans for charging monthly debit card fees.
But the banks are still staring down $6 billion in losses and they will have to make that up somewhere, says Edward Sibbald, a former banker and director of the Center for Excellence in Financial Services of Georgia Southern University.
“If you are a customer of a big bank, the chances of you having a free checking account in the near future are slim to nil,” Sibbald says. “They’ll probably also charge a higher fee for wire transfers and overdrafts. My fear is they’ll look at head count as a means of reducing costs. The last thing we need right now is more people unemployed. You’ll also see the end of rewards programs.”
After a month of public rage over Bank of America’s plan to start charging debit card users $5 a month next year, the bank on Tuesday announced it was scrapping the plan.
“We have listened to our customers very closely over the last few weeks and recognize their concern with our proposed debit usage fee,” David Darnell, co-chief operating officer, said in a prepared statement. “Our customers’ voices are most important to us. As a result, we are not currently charging the fee and will not be moving forward with any additional plans to do so.”
Banks miscalculated public’s anger
Banks greatly underestimated the power of social media and the frustration level of the public and overestimated their own importance, Sibbald says.
“Bank of America thought they were big enough and bold enough and convenient enough with all their locations that they could get away with it,” Sibbald says.
Bank of America made reference in the announcement to the competitive marketplace. The move followed similar reversals by four of the nation’s largest banks in the last week.
On Monday, SunTrust said it would end its $5 monthly fee for debit card users and shortly afterward Regions Bank said it would get rid of the $4 fee it started charging last month. Both banks said they would refund fees already paid.
JPMorgan Chase started testing $3 monthly debit card fees in February, but the company reportedly will stop the practice when its current pilot in Wisconsin and Georgia is completed in November. Wells Fargo announced last Friday that it was canceling its test program after two weeks of testing in Georgia, New Mexico, Nevada, Oregon and Washington.
“As we adjust to changes in our business, we will continue to stay attuned to what our customers want,” said Ed Kadletz, head of Wells Fargo’s Debit and Prepaid Cards in a press release.
Why this fee was one too many
Debit card fees seemed to push consumers a little too far – more than other bank fees — as this was a charge for using your own money as opposed to money “loaned” from a credit card or a fee for using a premium card. Customers who were trying to control their debt by using a debit card instead of racking up credit were outraged that they would have to pay for that decision.
Other banks and credit unions have been quick to play to that anger and say they won’t impose debit card fees.
TD Bank announced last week that it wouldn’t charge the fees. According to a recent TD Bank poll, nearly three-quarters of TD customers use debit cards 15 times per month. They cited ease, convenience and no fees as the primary attractions.
“All banks, including TD, are under pressure to respond to the regulatory changes surrounding the banking industry,” Nandita Bakhshi, Executive Vice President of TD Bank said in a press release. “With 70 percent of our customers saying they would discontinue their account if a fee was implemented, we listened to our customers.”
Bank of America’s fee proposal sparked pockets of grassroots opposition. One organizer was Molly Katchpole, 22, of Washington, D.C., who started a petition on Change.org to “Tell Bank of America: No $5 Debit Card Fees.” The petition had more than 300,000 supporters just before the announcement.
She said she started the petition because the fee “was obnoxious. They didn’t give any explanation for it.” She switched her accounts to a community bank and started the petition.
Katchpole said she thought the petition would do pretty well given the escalation of Occupy Wall Street protests going on at the same time, but she was taken aback when protests caught fire and Bank of America was forced to retreat.
“I wasn’t expecting it because the week before they had said they would refine the fee structure so I thought that was it. I thought there wouldn’t be any more news,” she says.
The message to others is “people need to realize if they are unhappy about something like this they have the right to try to change it. Even if they think the odds are completely not in their favor, try it anyway. Start a petition, write a letter. Make a few phone calls. Something.”
Other activists are hoping customers put their frustrations to work as Saturday’s Bank Transfer Day approaches. The movement is still on, despite the banks’ reversals. Organizers are urging consumers to switch their accounts that day to credit unions or community banks.
Bank Transfer Day is a social media-driven protest and Friday its Facebook page had more than 40,000 likes.
The Credit Union National Association (CUNA) says the movement is rapidly gaining steam. CUNA reported Thursday that based on a survey of 5,000 credit unions nationwide, at least 650,000 consumers have joined credit unions since Bank of America’s announcement. An additional $4.5 billion in new savings accounts also has gone to credit unions during that time, the trade group said. That compares to the 0.2% negative growth the trade group had reported through August.
But consumers should know that changing banks comes with its own set of potential problems. Consumers Union offers tips for those who want to switch banks at DefendYourDollars.org.
Customers also should be aware that just because a bank says it won’t charge a fee for debit cards doesn’t mean it won’t add charges elsewhere as the industry tries to recoup money lost in recent reforms.
Banks are expected to lose more than $6 billion in annual revenue because the Durbin amendment that kicked in Oct. 1 will reduce by roughly half the amount that banks can charge merchants for debit card transactions.
That comes on top of banks’ loss of nearly $5.6 billion, from restrictions that went into effect in July 2010 that limit what banks can charge for overdrafts.
Sibbald says the state of the economy, the relatively recent bank bailout resentment, and the feeling that “once banks got healthy again, they went back to their same old practices, including outsized compensation packages for their executives,” all fed the public’s anger.
Now banks will regroup and lick their wounds, Sibbald says. “You won’t see major changes until at the very earliest next spring. There will be a cooling off period. Bank of America can’t announce one week that it’s getting rid of the debit card fee and then a week later say, ‘Oh, by the way all your checking accounts are $15 a month.’”
(Story updated 11-04-2011. Originally published 11-02-2011.)