From October 31, 2011 American Banker
The Debit Fee Outrage Is Justified
By Norma Garcia
Bank of America's recent announcement that it plans on charging most of its customers a $5 monthly fee to make debit card purchases has touched off a firestorm of protest across the country. And for good reason. For most Americans, who have already paid dearly for the economic mess touched off by risky bank practices, this latest fee just adds insult to injury.
Bank of America CEO Brian Moynihan seems to have been caught off guard by the public reaction. But this episode really shouldn't come as a surprise and should serve as a cautionary tale for all banks.
Why should consumers have to pay $5 each month just to have access to their own money, especially when banks get paid more than enough to cover their debit card costs by retailers?
Some banking industry representatives are blaming the Dodd Frank Wall Street Reform law for this latest fee. Before the new law went into effect, banks were charging retailers an average of 44 cents each time a customer paid with a debit card at the check-out, according to the Federal Reserve Board. The Fed found that amount to be excessive and way out of proportion to the banks' actual costs.
Under the new law, banks can still collect about 24 cents on the average debit card transaction from retailers. That's three times the 8 cents it costs the bank to process the transaction, according to the Fed.
So this isn't about Bank of America covering its costs. It's about hanging on to the excessive fees the bank got used to charging retailers. Only now it's the consumer's turn to get gouged.
The truth is, banks are actually saving money now that consumers are relying more on debit cards instead of writing so many paper checks. It cost banks far more to process a paper check than a debit card transaction.
Bank of America's financial woes have more to do with its own bad business decisions than new federal banking regulations. In 2008, the bank bought the nearly bankrupt Countrywide Financial Corporation, a subprime mortgage lender that has come to symbolize the odious lending practices that triggered the foreclosure crisis.
Bank of America bought the company for $2.5 billion and soon became embroiled in multiple federal investigations and lawsuits over fraudulent lending practices. Analysts now say that the Countrywide acquisition has cost Bank of America more than $30 billion because of writedowns and lawsuits.
Consumers Union has heard from thousands of consumers across the country who are outraged that Bank of America is instituting the $5 monthly debit card fee, especially after taxpayers rescued the bank with a $45 billion loan just a few years ago.
Americans are waiting for financial institutions to be held accountable for their role in causing the biggest financial downturn since the Great Depression. With foreclosures at a record high, little progress has been made to ensure lenders are doing all they can to help more families keep their homes.
A $5 debit card fee might seem trivial compared to the bigger challenges we face. But for millions of Americans who have lost their jobs or seen their home values plummet or watched the value of their 401ks shrink because of the struggling economy, the fee represents a tipping point. Many consumers are voting with their feet and moving their money to smaller community banks and credit unions that aren't charging fees to use debit cards. They've lost faith with big financial institutions that seem tone deaf to the concerns of ordinary Americans.
One consumer who contacted Consumers Union said it best: "I am tired of the banks and other financial institutions trying to collect more than their fair share." Consumers Union couldn't agree more. Bank of America should demonstrate that it is listening by dropping its plans to charge a debit card fee. And other banks should take heed of the public's mood before adding similar fees.
Norma Garcia is a senior attorney and manager of Consumers Union's Financial Services Team. Consumers Union is the advocacy arm of Consumer Reports.