Does anyone have a right to a free debit card? Absolutely not. Should we be outraged at the news from last Friday that Bank of America will soon begin charging its customers $5 a month for using a debit card? Absolutely. But not towards B of A.
Back in March we started a Durbin Swipe Fee Watch when news broke that JPMC and Wells Fargo were cutting programs for debit card holders. Lest a critic point out that at least they didn't start charging people, the fact that they took a program that was giving people money meant that they were taking future money away from customers, which is basically the same thing as adding a fee, causing customers to have money go away too.
And as a reminder, the reason this happening is because Dodd-Frank required the Federal Reserve to put a cap on the amount banks could charge businesses for accepting debit cards at the point of sale (as if that caused the financial crisis). That means between $6 billion and $7 billion in lost revenue a year for the banks. Revenue that they used to fund debit card programs, issue and maintain cards, provide service and insurance on the cards, not to mention fraud management. So without that revenue banks have to change their business model.
Now for issue III of the Durbin Swipe Fee Watch, from the Journal:
Bank of America Corp. is laying plans to charge millions of customers a $5 monthly fee to use their debit cards, and other big banks are expected to follow suit. The industry says it needs the fees to recoup revenue it will lose because of new government regulations taking effect Saturday that cap what they can charge merchants for debit-card transactions.
Bank of America, the largest U.S. bank by assets, disclosed the plan on Thursday in a memo to its senior staff. It intends to begin collecting the fees nationwide early next year. Bank of America Corp. plans to charge customers a $5 monthly fee for making debit card purchases starting next year. Andrew R. Johnson joins the PM Hub to explain.
Several other large banks, including J.P. Morgan Chase & Co. and Wells Fargo & Co., are testing or plan to test similar fees in some states. Regions Financial Corp., a Birmingham, Ala.-based lender, has said it will start charging a $4 monthly debit-card usage fee on certain accounts on Oct. 1. [...]
J.P. Morgan has been testing a $3 fee in a small market in Wisconsin since February. SunTrust Banks Inc. has begun charging a $5 monthly fee for "unlimited debit-card purchases." The fee has been in effect since June for new customers that open an "Everyday Checking" account, and will go into effect in November for existing customers who choose that account. [...]
San Francisco-based Wells Fargo said it will charge a $3 fee for some debit-card customers in Nevada, Washington, Oregon, New Mexico and Georgia, starting Oct. 14. Wells Fargo's fee also applies to debit-card use, not ATM transactions. [...]
Citigroup Inc. said last week it was raising fees on certain checking accounts but would not charge fees for using debit cards.
Just to be clear, why are banks doing this?
Bank of America has said it expects the caps, which the industry lobbied against for months, to erase $2 billion in revenue annually.
"The economics of offering a debit card have changed with recent regulations," a spokeswoman for Bank of America said Thursday. [...]
A Wells Fargo spokeswoman said that the fee is part of a pilot program, and that the bank has not determined whether it will roll it out to all customers. Wells Fargo has said it expects to lose $250 million each quarter from the new caps on swipe fees.
Bank of America, Wells Fargo, and others customers may very well want to change because of the fee. USAA is choosing to try and cover their higher costs by ending rewards programs but advertising their free debit cards in order to try and take market share and thus higher revenues. Consumer advocates even have a resource for how to change banks if you don't like your current fees. But consumers shouldn't blame the bank for "gouging" the consumer.
The banks aren't stupid in this regard. They understand the potential for lost business and that the fee will not be welcomed with any happiness. But they also have a business to run and if there is not enough revenue you have to change the model. As Jamie Dimon said last year, "If you're a restaurant and you can't charge for the soda, you're going to charge more for the burger. Over time, it will all be repriced into the business." Unfortunately, the consumer is caught in the attack on the banks by the government and well-meaning, but misguided politicians.