Are You Ready to Pay $3 (or more) Per Month to Use Your Debit Card?

Front page in today’s WSJ was an article about how Bank of America is planning to start charging their customers $5 per month when they use their debit cards. Other banks are testing such fees.

Why the new fee?

According to the article, the fee is in response to a part in the Dodd-Frank Financial Reform Bill that will limit the amount banks can charge businesses for transactions (“swipe fees”). Those fees have been capped at $.24 per transaction. They are currently $.44 per transaction. This change will supposedly cost banks $6 billion per year in lost revenue.

What’s funny (maybe funny is the wrong word) is this quote from Dick Durbin:

Sen. Dick Durbin (D-Ill.), who championed the legislative provision that led to the caps, said in a prepared statement: “After years of raking in excess profits off an unfair and anticompetitive interchange system, Bank of America is trying to find new ways to pad their profits by sticking it to its customers. It’s overt, unfair, and I hope their customers have the final say.”

Come on, Dick! Do you honestly think banks will just accept $6 billion in lost revenue? HARDLY! This is simply another case of how government involvement leads to unpleasant consequences (I was going to say “unplanned consequences” but I can’t see how new customer fees could be an unplanned consequence of new regulations).

This is a relatively small issue for me but one of the retailers I visit, Spec’s Liquor, has a two-tiered system for charging customers. Customers who pay with cash or debit card, receive a discount. Those who pay with credit card, do not. So, I’ll either have to pay with debit and incur a banking fee, pay with cash (I seldom carry cash), or use my credit card and forgo the discount.

I am happy to report that Christopher Dodd, Barney Frank, and Dick Durbin will be happy to reimburse you for your fees. Just send them the bill. (Unfortunately, that was a joke.)

17 thoughts on “Are You Ready to Pay $3 (or more) Per Month to Use Your Debit Card?”

  1. This happens all the time. These dimwits pass some regulation that is supposed to “help protect consumers” and all that happens is consumers wind up paying more somewhere else.

    I see it everyday in the mortgage business.

    What’s sad is they can never see the connection or implications of their meddling.

  2. We are already paying more because the bank transaction fees are HIDDEN from the customers in the first place.

    The best approach would have been to charge the merchants ZERO for the transaction, and then customers could shop around for banks that charge the LEAST to the individual for their debit transactions. Why do you think banks have all these ‘reward’ cards to entice their customers to use debit more? Because banks are getting that money (plus more) on the back-end.

    Think about it this way: What incentive was there before, for customers to find a bank that charged LESS than $0.44 per debit transaction? Lowering it to $0.24 (instead of preferably $0.00) will at least get customers to start thinking about these fees and try to minimize them. BofA charging $5.00/month per debit card shows you have much of a (HIDDEN) profit center this was for banks before the legislation.

    If anything, the legislation didn’t go far enough. Ideally it would have removed (completely) the merchant-side fees and made them 100% consumer-side fees (with no limits). Then all the information is available and we’d have a functioning free-market.

  3. I (a mostly liberal-leaning voter) really dislike how almost all politicians just simply do not think things through. They simply can’t understand the secondary and tertiary effects of their ill-conceived legislation. Their intentions may have been to try to help out those who are poorer and/or have small bank accounts, but those are exactly the people who will be hit with these fees. People like me who are fortunate to carry larger bank balances will escape them. How was this not unexpected?

    I believe in a gentle regulatory hand countering the often-wild invisible hand of the market. But that gentle hand cannot wear the rings of idiocy.

  4. Actually, BG makes a good point, too. Making interchange fees completely transparent would allow customers to shop for better rates. Kudos for your thoughts.

  5. It is ridiculous (I just wrote about the same thing today…great minds?).

    Bank of America is a FOR PROFIT COMPANY. The executive and board members have a fiduciary duty to “pad the profits” of the shareholders. I feel like when someone makes that argument they forget we live in America.

  6. Evan, who is saying banks shouldn’t make money? I’m saying the fee-structure should be made more transparent: by making the bank CUSTOMER pay the fees directly.

    In a sense, BofA charging $5/month per debit card is making it more transparent (but it doesn’t go far enough IMHO).

  7. The charge is downright silly. $60 per year for spending your own money!!! May be the dick heads in bofa are ready to process checks given by a customer in a store!! Jeez I thought that was main reason people started using cards.

    Wondering when banks will start charging for using atm.

  8. The point is that in a free market businesses are free to structure transactions any way they see fit, as long as there’s no deception. There’s no deception here unless Americans are now so far socialized that we think businesses provide products or services for free. One of the ways a bank makes money is by facilitating purchases, a service, and debit card purchases are at the discretion of the buyer. If you don’t want to pay for debit, don’t use it or limit your number of purchases. Why not require every product we buy to list on the package precisely how much every player in the manufacturing, distribution, retailing, etc., processes for that product will make on the sale? I’m sure that many of you would consider their earnings deceptive.

  9. …and reducing the allowable amount from .44 to .24?? They must use the same staff that determines what “rich”, “a living wage”, and the “poverty” level is.

    Grandma, what big ideas you have.

    The better to polarize you with, my dear.

  10. And the free-market is already starting to work…

    Balaji) I’m probably just going to close my BofA account and go full-tilt with the local credit union. Will miss BofA’s awesome website though.

    This legislative change could open up new avenues for business: I’m thinking about third party debit cards linked to any banks checking account — anyhow, it is about time these banks start competing (and driving costs down for everyone)

  11. Nothing like consumers and businesses making financial decisions based on legislation and taxes.

    Credit unions are the way to go. Much better experience, iin my opinion, and a lot less red tape. Of course, the next time I need to borrow $10 million…

  12. I’m not sure how this will work out for me, as I bank at Wells Fargo. So far no announcement of debit card fees.

    My former credit union was taken over by a new credit union and the first thing they did was to send a letter to customers telling them that they would charge us 25 cents each time we used our debit cards with a PIN. No charge for using debit if we signed. That freaked out my two daughters, who had accounts there, and they moved their accounts to another credit union here in town.

    A month or so after that the credit union sent out another letter saying that they were waiving the 25 cent fee for members of the acquired credit union. Apparently they were hemorrhaging customers – as was confirmed by the teller at the new credit union my daughters joined. Not sure the moral of that story, but it relates to this article.

    For me, I am thinking of using more cash, and less debit, when that makes sense.

  13. Sam, they probably were waiving the fee for ‘ signed transactions’ because that is a credit transaction and the bank is skimming 2% on those.

    The new legislation does not affect credit cards — so be wary of banks trying to get their customers off of debit and back on credit.

    MV) it is deception because the consumer was getting gouged and didn’t know it. Also the merchant agreements forbid merchants from charging a higher price for debit/credit and also forbid merchants from setting minimum amounts.

    Why should cash paying customers pay higher prices to subsidize the bank’s gouging of their customers?

  14. BG,

    I am all for transparency, and if that forces customers to leave (I am not a BofA Customer, mainly because of their fees on checking accounts – way before Dodd-Frank) so be it.

    But for a Senator to try and guilt a business like a mother is ridiculous.

    he Customers do have the final say they can leave.

  15. “But for a Senator to try and guilt a business like a mother is ridiculous.”

    And it is likewise ridiculous that a bank would try to guilt a congressman for a regulation that removes (some of) the price collusion and anti-competitive business practices that large banks have been doing for years.

    You do realize that with the fee capped at 24 cents, whereas the ‘cost of the service’ is 7-12 cents, the bank is STILL making a profit on every single debit transaction?

    If they want to make more (excess) profit, they will have to do it on the front-end (consumer fees) — and they will have to compete with banks that DO NOT charge that fee to do so.

    This is exactly the point of the ‘Durbin Amendment’. He turned on the light and now the cockroaches and scrambling…

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