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Bank of America Adding Debit Card Fees - Future for Debit Cards?


Bank of America is the latest large bank that has announced new fees for debit card usage. According to the Wall Street Journal, Bank of America "disclosed the plan on Thursday in a memo to its senior staff." According to the memo, there will be a monthly fee of $5 if the customer makes debit card purchases during the month. ATM transactions won't count. This will be on top of any standard monthly service fee that may apply to the checking account. According to this AP article, the fee will be rolled out in stages starting with select states in early 2012.

As I reported in August, several large banks have announced new debit card usage fees. Wells Fargo and Chase are testing a $3 monthly fee in some states. SunTrust has added a $5 monthly fee on its Everyday Checking and Student Checking accounts, and Regions Bank has added a $4 monthly fee on some checking accounts. In all of these cases, the banks are only charging the extra monthly fee if the customer makes debit card purchases during the month.

Banks are blaming the new debit card interchange fee regulation that takes effect tomorrow, October 1st. This will cap the fees to 21 cents with an extra 0.05% of transaction price to cover fraud prevention costs. The Fed raised the caps in their final rules that were released in June to ensure all costs were taken into account. They do not include the costs of reward programs. So when large banks like USAA Bank announced the end of their debit card reward programs, that made sense. But there's a big difference between ending debit card reward programs and adding new monthly fees.

Effects on Small Banks, Credit Unions & Reward Checking?

Bank of America is the largest bank in the nation based on total assets, so the concern is that this new debit card fee will become the norm for all banks. However, it's important to note that banks and credit unions with under $10 billion in assets are exempt from fee caps in this new debit card regulation.

There are only three credit unions with assets over $10 billion (Navy FCU, State Employees' CU and Pentagon FCU). So the vast majority of credit unions are exempt from the cap.

The vast majority of banks offering high-interest reward checking accounts are under $10 billion in assets.

Before the debit card fee regulation was finalized, small banks and credit unions were lobbying to have the regulation delayed. There were concerns that small banks would still see lower debit card interchange fee revenue even with the small bank exemption.

With the regulation taking effect tomorrow, there are still uncertainties about the long-term effect on interchange revenue at small banks. I recently received some insights on this from one of my reward checking industry contacts. I was told there are still concerns at the small banks in how companies like Visa and MasterCard will implement the cap. Will small banks really be free of these caps? Also, will the retailers refuse to accept debit cards from small banks that don't have fee caps?

One small bright spot for the small banks is that the final regulation did not include rules on network exclusivity. These rules would have given retailers more choice as to which network they would run the debit card transactions on. Small banks feared this would drive down interchange revenue.

Avoiding Debit Card Fees

One easy way to avoid debit card fees is to switch to credit cards. The new regulation only affects debit cards. It does not affect credit cards. Bank of America still allows customers to use its credit cards without monthly or annual fees. In addition, they still offer cash back rewards. For example, BankAmericard Cash Rewards Visa Signature Card offers 1% cash back on every purchase, 2% on groceries and 3% on gas. Another benefit of credit cards is that they are inherently safer to use. If there's a fraudulent charge, money doesn't immediately leave your checking account. The only issue with the credit card is that you need to ensure you pay off your balance each month so you don't build up debt. For those who can't do this, I suggest you review this money-management program.

For most of the readers of this blog, the only reason to use a debit card is to qualify for high interest in reward checking accounts. As I mentioned above, the vast majority of banks and credit unions offering reward checking accounts are exempt from the cap. If the regulation proves to be costly to small banks, we may see lower reward checking rates and banks ending their programs. For the time being, reward checking continues to be a good alternative to internet savings accounts. We still list 100's of reward checking accounts paying at least 2.00% APY on balances up to $25K. In addition, the vast majority of reward checking accounts are free checking accounts with no monthly service fees even if you don't meet the monthly debit card usage requirements. For those who just want a free checking account with no charge on debit card usage, reward checking is still a good choice. Please refer to my reward checking account overview post to learn more about high-interest reward checking accounts.

Another option is an internet bank like Ally Bank, ING Direct, Incredible Bank and USAA Bank. They offer free checking accounts with no extra fees for debit card usage.

Related Pages: Bank of America, checking account

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marc (anonymous)   |     |   Comment #1
I find it insane that banks would rather earn no income from some people than simply less.  Because I feel the fee is going to result is debit card users simply moving to credit cards.  Now, with BofA, maybe their plan is for those people to use BofA credit cards where they will make the higher fees, even after the rewards.  Could we start seeing the rise of check writing again annoying those people behind them as they slow the line down?  Possibly.  More likely, I think this fee will go away, but maybe I have too much faith in the rationality of the public to make the reasoned decision to not use debit cards if they are being charged.  For those without credit cards, there should always be small bank or credit union alternatives that don't charge the debit card fee.  There's simply too much competition and product variety in the US in banking to be subjugated to foolish fees.
Anonymous   |     |   Comment #2
It is really a no brainer now to go online for banking. No fees, no minimums, higher rates.... The old reasons for sticking with brick and mortar banks do not seem to be valid anymore. You can do anything (with the recent remote deposit of checks) online that you can do in person or at an ATM now unless I am missing something?? As long as you are FDIC protected, why do you need a bank building anymore?
Anonymous   |     |   Comment #3
For the safe deposit box.  For the ability to make large cash deposits if you run a business where customers pay mostly with cash.  For the ability to get cashier's checks immediately when you need to pay something major or official.  For the ability to apply for a loan face-to-face with a lending officer.

Your point is well taken, but we still do need bricks and mortar for many transactions.
Anonymous   |     |   Comment #4
Brick and mortar banks are fine , just not big brick and mortar banks like bofa
Anonymous   |     |   Comment #5
I LOVE these fees. Maybe it's just what people leave to finally say they've had enough of beeing fleeced and LEAVE the banks that treat their customers like dirt and move to smaller COMMUNITY BANKS and OPEN CREDIT UNIONS. There was a big article in today's LA Times (you can Google it), with one person essentially saying "I guess I'll have to suck it up, it's too much trouble to change." Boy, I'd love to have this guy's contact information. I want him as one of MY customers. If they raise it to $500 a year instead of the current $60/year for a debit card, would he still stay? I guess there's enough dumb or lazy people out there that know they're being fleeced but just keep taking it, like an abused spouse. One other person in the LA Times article put it best, saying that with well over $20,000 in the bank, she's the type of customer BofA constantly tries to woo -- and as soon as she heard, she immediately closed her BofA account and moved everything to her local Credit Union, saying she couldn't stand the greed of the bank.

These fees can be good in the long run not just being the final straw to hopefully entice those already being fleeced by the large banks to move to smaller banks and credit unions, but also because debit cards are, and have always been a bad choice. Unlike a credit card, they technically have almost no protection against fraud, loss, and abuse. You're always being nickeled-and-dimed (now only more) -- many merchants have always charged you to use POS/Debit cards (for instance, here in Southern Califonria, Arco Gas, the biggest chain of gas stations).

I have followed these steps and have always been a happy financial institution customer:

(1) Get ONLY an ATM card (NOT Debit card). If a financial institution doesn't offer an old-fashioned ATM-ONLY card, I don't bank there. All of the places I bank at still offer ATM-only cards -- even though it's not the default, and you have to SPECIFICALLY REQUEST them.

(2) Other than ATM-only cards, I use a Credit Card in place of a debit card. And I have only TWO credit cards. That's all I need. One from one credit union that I use all the time (Visa) and the other (MasterCard) from another credit union as an emergency backup. I pay the credit card off every month, and as they are both from credit unions, there are never any monthly fees or unfair bank fees associated with them. Since debit cards take from your checking account (where you have money) using a credit card to pay off each month is really no different. If you have long-term charges on your credit card already that you cannot pay off every month, then simply apply for another credit card that you will use for daily purchases (request one with a LOWER credit limit, like under $2000) to use as you would if it were a debit card. Just don't buy more with this "everyday" card than what you have money for -- the same way you couldn't make purchases with the debit card unless you had that money in your checking account (unless you were foolish enough to pay for overdraft protection, but that's another story).

(3) Move to a community bank or credit union. There are TONS of them everywhere, and you can't believe the difference it makes. Wherever you live there are lots of local credit unions you can join, you just have to look for them. Some that are "closed" may be open to you if you live in their area. But there will also be PLENTY of "Open" credit unions near you that are open to all. And with the CoOp network, and shared networks, there are more ATMs than even the largest bank. For instance, here in Southern California, I have access (FREE for Credit Union members) to any ATM in a 7-11 store (non-credit-union members have to pay the $2 fee for the 7-11 ATMs), plus all the other credit unions in the area, plus many more ATMs. Just go to Google and do searches for local credit unions. Go to websites like www.findacreditunion.com or www.ncua.gov or www.creditunion.coop   Or you could just keep throwing money out of your car windo--- er, I mean to your big bank.

I have a feeling most of the people here that read Ken's blog are savvy enough about banks to know this already. But it's amazing how dumb and lazy people are, which is why the banks continue to do this. Very telling, is that BofA absolutely REFUSED to disclose to ANY reporter (from any of the sources I saw -- multiple ones that they tried to to find out this information) exactly how much it actually DOES cost BofA to process each debit card transaction (even though Congress allowed for 21c in the new rules, most experts have pegged it at around 2c-3c). They simply want to keep stuffing themselves with money from you, and those that are too lazy to get up off their behind and make a change one time will keep enabling them for the rest of their lives. I think it's time people do bank "interventions" with their friends...

pithy banter
pithy banter (anonymous)   |     |   Comment #6
i love the fees tambien
Anonymous   |     |   Comment #7
@#2 what are you talking about? do you only write checks or use cash? using the card number is what you are being charged for. how will i pay my bills last minute like 90% of americas without a checking account debit card? how will i buy meds for my kids at 12:01 am when my check is barely direct deposited and im on the other side of town of my local branch atm? oh i dont have to pay a fee if i have 20000$ in the bank? WTF is the point in that? if i had good credit (no market crash) i would have ten credit cards! so its my fault the bank cant manage my money? i thought they got paid to hold it already? not charge me more? wtf is the point in that? i bet an emp blast would be the only reality check for america EVER!
Anonymous   |     |   Comment #8
RE: #7

Just because, as you describe, you are a financial failure, doesn't mean #2 is wrong.  Online is the way to go, except for the examples given by #3.  How did the market crash ruin your credit?  You probably did it yourself by being irresponsible.  The problem with this country is a lack of people who will take responsibilty for their actions.  The savers and financially prudent are paying a big price now for them, and will have to bail them out more, I'm afraid.
Don (anonymous)   |     |   Comment #9
I think everyone should show the banks who is the boss, I called and e-mailed my bank (US Bank) and they claim that they are not going to follow Bank of America's lead and charge for debit card use. I told them that I will find a different bank and tell everyone that I know to do the same, if everyone was to quit having a pitty party and show these banks who is boss maybe customer service might return.
Anonymous   |     |   Comment #10
Received a mail from Chase that they will start an Annual fee of 49 dollars starting from December when my card completes one year. Wondering if this becomes the norm for credit cards too
schris413   |     |   Comment #13
Lazy is right. It is so easy to open a new bank account these days. 
Jo (anonymous)   |     |   Comment #16
More's the reason to stick with USAA. I can almost guarantee they won't be imposing a charge on debit card usage. Since they largely cater to the military, with those earning 3% below what the civilian sector earns, the last thing they should avoid is sticking it to the younger non-coms.

As for the TBTF banks, if they want to play with fire, they better be ready to get burned....badly.
Anonymous   |     |   Comment #17
One of my credit unions (LA Financial) send out an email on this topic.  They indicated that they HAD NO INTENTIONS of doing any charges for their customer to have and use a debit card.

IF BOA does attemtp to charge me, then that account will be closed, and I will use a credit union or bank somewhere else in the country.  I have been with BOA for 40 years (since they took over  local bank years ago), but their services have become problematic.  The only really good thing I can say about them, is that they are better than Wells Fargo in my opinion.
ct (anonymous)   |     |   Comment #18
remember when banks started rolling out the higher ATM fees

people groaned, but they relatively stayed put and now the fees, and sometimes multiple fees are accepted


it's not all that suprising to see an ATM charge $4 and then have your back charge you another $3.50 to use it, all for a process that is cheaper for them to run than an actual bank teller in a b&m branch.

why would't a customer pay a single $5 to use their debit card all month?

i'd guess BofA will just add programs to refund the fees like how current interest rate programs work
ct (anonymous)   |     |   Comment #19
bankguy, you didn't mention the most interesting thing i found in the article.

it noted talk of testing out other charges, like charging you a fee when for auto bill payment generated by an outside source, like your cable or electric bill. they want to force you into their systems.

will be interesting if the auto bill payees like the cable, phone, and electric cos fire back with fees for taking auto bill payment not generated on their end too. will have to start writing checks again. heck i don't even own a stamp or know where the post office is!
Greg (anonymous)   |     |   Comment #20
Well, of course BofA and all other banks will find ways to make up for their lost revenues.  Did anyone really expect them to cheerfully write off their losses and move on?  Whoever did expect that probably also believed that retailers will be passing their savings on to their customers.  Ever since the Fed cut the debit interchange fees it was obvious to anyone who was paying attention that consumers will end up footing the bill.  http://blog.unibulmerchantservices.com/debit-card-fee-limit-lifted-to-24-cents-consumers-will-still-pay-for-it
larkin   |     |   Comment #21
So much for Keep The Change...
Anonymous   |     |   Comment #22


I am done with BOA $5...is my hard earned $5 and I will keep it.  I have switched to a Discover cash back card and I do all my purchases there now.  I also am switching to Credit Union and making higher interest rate on my money.   Thanks BOA for opening my eyes to better banking!! 

RJM   |     |   Comment #23
My credit union, where i have  a reward checking, has safe deposit boxes too. For half what Wells Fargo charges.

My only issue is, I closed my account at wells fargo a few weeks ago and now I need a signature guaranty. Hope they will do it with jus the box.

I plan to close out the box in a few months and make a few trips to my credit union. 

For many years, I made lots of money in stocks.

Now, the stock market gods are showing me what "payback" is all about !



Anonymous   |     |   Comment #24
Why won't people just apply and use for the BankAmericard rewards credit card?!? It has been only recently since Bank of America has been advertising or pushing this product on TV, internet, magazines, and branch tellers.  It rewards you, too, with the 3% back for gas purchases, 2% for groceries, and 1% for everything else. Just stop using your BoA debit card; and use the credit card. That's all.
Anonymous   |     |   Comment #28
ARE YOU PEOPLE SERIOUS? Use credit cards instead? Do you really think that your interest that you will pay for the credit card will be less than $5? Get real. I knew something like this would happen to encourage people to use their credit cards again after the Credit CARD Act in 02/2010. Banks lost billions in potential fees on this. Of course, if people are led to believing that using their credit cards is a better option, that means more interest charges for lenders. What people need is to support smaller banks/credit unions and get free accounts there, not use their credit cards. Yeah, great idea, instead of paying $5 per month, let's get a pattern of using our credit cards for everything, so we can spend more than we have in our bank and become overwhelmed with debt? Or maybe you are one of those people that think that this won't happen to them, they know how to control themselves and their budget. Suuuure, im certain many of those who had to file bankruptcy because they couldnt manage their debt payments thought so as well when they started using their credit. Come on people, THINK!
RJM   |     |   Comment #29

I am pretty sure I have never paid a dime in credit card interest. Have you ever had one ? Clearly you dont understand them.

Just because I use  a credit card for most purchases doesnt mean I pay interest.

ARE YOU SERIOUS?  Come on people, THINK!


Anonymous   |     |   Comment #30
Part of the problem for banks is FDIC fees on deposits. FDIC assesed 35 bps more than once in the last few years .