Bank of America latest lender to charge debit card fees
Starting early next year, Bank of America — the nation’s largest lender — will begin charging a $5 monthly fee for debit card users. The bank says the new fees are to offset revenue lost due to new regulations that limit the amount they can charge merchants per transaction. Other banks are expected to follow.
Applies to most depositors
The fees will be waived if the card is used only at an ATM or if the cardholder has a mortgage with BofA and owes at least $20,000. Most will pay $60 a year, which will be charged on top of any existing fees.
New Fed regulations
The new federal regulations — which take effect Oct.1 — limit the amount banks can charge merchants per debit card transaction. Currently that amount is about 44 cents per sale, according to David Lazarus of the Los Angeles Times. Beginning Saturday, banks will not be able to charge more than 21 cents for each debit card transaction; that is an amount the Federal Reserve has determined is “reasonable and proportional.”
However, Anne Pace, a spokeswoman for BofA, said the fees are necessary to continue to provide the services that come with a debit card, such as fraud and overdraft protection. “That convenience comes at a cost,” said Pace.
Encouraging use of credit cards
Consumers are increasingly switching from credit to debit cards in an effort to avoid high interest charges and to stay out of spiraling debt. However, there are no similar fee caps on credit card usage. According to banking analyst Bart Narter, the move is essentially encouraging credit card usage over debit cards. Because BofA has a huge credit card portfolio, “it’s become a more profitable business, at least in relation to debit cards,” said Narter.
But the new fees will send many debit card users back to checks or cash. An AP-GFK poll this summer showed that 61 percent of debit card users would find another method of spending if charged a $3 monthly fee. That number rose to 66 percent if a $5 fee was imposed.
Another piece of cake
Some see the fees as little more than a way to undercut Federal regulations and perhaps increase profits. David Lazarus wrote:
“Do the math: BofA has 57 million consumer and small-business accounts. If a majority of them uses debit cards, we’re talking a windfall of about $3 billion a year — or $1 billion more than BofA is currently making from transaction fees. … BofA isn’t just having its cake and eating it too. It’s serving itself another piece.”
Could become standard
The fees could soon become the industry standard. Atlanta-based SunTrust Bank started charging a $5 debit card fee over the summer. Birmingham, Ala.-based Regions Financial plans to assess a $4 fee on its debit card holders starting next month. Both Chase and Wells Fargo will soon begin testing a $3 monthly fee in selected markets.