Big banks back away from debit card fees
Responding to public pressure and the competitive rates featured by competitors, Bank of America is reconsidering its debit card fees, as rival Wells Fargo and JPMorgan Chase scrapped their versions of the highly unpopular new charge.
A press release from Wells Fargo, which picked New Mexico as one of the five states where the bank planned to roll-out a trial debit card fee program, reads:
“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. “This means understanding their needs as we continue to deliver the world-class service, convenience, and value they have come to expect from Wells Fargo.”
But the bigger news is Bank of America allegedly eying a dramatic rescaling to their proposed fee program, in which bank customers would pay $5 to use their debit cards. Only customers with accounts that have minimums of $20,000 and $50,000 would be spared.
Here’s the scoop from CNN Money:
Now, under proposals being considered by the bank, Bank of America would offer customers new ways to avoid having to pay the fee.
Currently, only customers with certain premium accounts would be exempt from the fee.
Under the new plan, customers would be able to exempt themselves by having their paychecks deposited directly with Bank of America, maintaining minimum balances or by using Bank of America credit cards.
Earlier today, JPMorgan Chase announced it too would drop its debit card fee program after running a trial version in two states since February.
Chase and Bank of America, the number one and two banks in the U.S. in terms of holdings and branches, togther hold over $4.5 trillion in total assets.
Bank of America’s double-take comes after a bevy of bad press aimed at the bank and industry as a whole. Rep. Brad Miller (D-N.C.), a member of the Financial Services Committee, introduced a bill earlier in October to bar banks from levying mulcts from customers seeking to close their accounts. In a press release, he said, ““As megabanks flirt with menus of new fees, an increasing number of Americans will want to switch banks.
“That is the way things work in a competitive, free market as unrepentant banks are still trying to rake in vulgar profits from their customers.”
Facebook groups organized customers to switch from Bank of America to local banks or credit unions–financial firms that tend to avoid mega-bank fees.
Bloomberg explained the impetus for the new charges last month:
The [Federal Reserve] capped debit-card swipe fees at 21 cents starting Oct. 1. It will let issuers tack on five basis points, or 0.05 percent, of each transaction, or almost 2 cents based on the average debit purchase of $38, and a conditional 1-cent adjustment for lenders that follow fraud-prevention standards.
The cap, mandated by the Dodd-Frank Act, replaces a formula that averages 1.14 percent of the purchase price, or about 44 cents. The limit may reduce annual revenue at the biggest U.S. banks by $8 billion, data compiled by Bloomberg Government show.
In general, banks are finding new methods of warding off low-value customers who use savings accounts but avoid higher yield financial services. With economists stoking fears of a second dip into recession throughout the summer months, commercial bank holdings have increased at blistering rates due to individuals in search of a safe place to park their money.
However, with every new dollar under a bank’s management, that’s additional federal fees the bank has to pay, like deposit insurance premiums, also known as FDIC. And with interest rates near zero, and a dearth of expensive loans being issued, the financial firms have little to gain from the additional holdings. During the financial boom years preceding the economic collapse, banks were hungry for cash holdings to better leverage the high number of mortgages issued.