Bank of America Corp. will charge customers $5 per month for making debit-card purchases as it becomes the latest big bank to roll out more fees in response to new regulations.
The charge, announced Thursday, begins early next year and applies to customers who use their debit cards for purchases in a given month. It doesn't apply to customers with certain premium accounts, those who don't buy anything with their cards that month or those who use their cards only to make ATM transactions.
The move comes as Charlotte-based Bank of America, the nation's largest bank by deposits, and others brace for lower "swipe fees" that merchants pay when customers use debit cards in their stores. The Federal Reserve in June capped those fees at about 21 cents per transaction as a requirement of the Dodd-Frank financial reform law - down from an average of about 44 cents per transaction.
The caps take effect Saturday despite banks' fierce lobbying against the provision.
"The economics of offering a debit card have changed with recent regulations," Bank of America spokeswoman Anne Pace said.
She said the new fee will allow the bank to continue to offer debit cards with the features customers have come to expect, from fraud protection to overdraft prevention to savings programs. The fee will be phased in in select states in early 2012, though the bank declined to say which states would be affected first.
Other banks have taken similar steps in recent months. Wells Fargo & Co., which bought Charlotte's Wachovia in 2008, said last month it would test-drive a new fee, charging customers in five states $3 per month for debit-card purchases, starting in October.
Those customers can avoid the fee if they don't use their cards or by signing up for certain checking accounts, Wells Fargo said. The pilot program, for customers who opened business and personal accounts in Oregon, New Mexico, Nevada, Georgia and Washington, won't affect Carolinas customers, and the bank has not yet announced whether it will expand the program.
New York-based JPMorgan Chase & Co. has been testing a $3-per-month charge in northern Wisconsin since February. Meanwhile, Atlanta-based SunTrust Banks Inc. began charging a $5 debit-card fee on its basic checking accounts this past summer. And Regions Financial Corp., based in Birmingham, Ala., told customers recently it would charge a $4 monthly fee starting in October.
Banks wrestle rules
The fees are the latest in a string of changes in the banking industry that include pricier checking accounts and slimmer rewards programs as banks adjust to new regulations that will limit traditional revenue sources.
"We have seen the steady upcreep of fees tick into overdrive in the past couple of years due to regulatory changes," said Greg McBride, senior financial analyst at Bankrate.com.
Just 45 percent of non-interest checking accounts the firm surveyed are now free, for instance, down from 76 percent two years ago, he said.
McBride expects the trend to continue, affecting some customers' decisions about how to pay and which bank to use. While some consumers with "sloppy financial habits" won't notice the monthly debit-card fees or will continue using the cards out of convenience, others will seek alternatives, he said.
"Consumers that are savvy about their finances are not going to pay needless fees," McBride said. "They'll switch to a credit card that has a more generous rewards program, ... or they'll take their business elsewhere."
If more customers use credit cards for their everyday purchases, that could squeeze retailers: There's no similar cap for the fees banks can collect from merchants when customers pay with credit cards.
Credit cards, particularly those with high rewards, are already the most expensive payment option for retailers, costing 5 percent or more on transactions, said Brian Dodge of the Retail Industry Leaders Association, a trade group that represents the biggest U.S. merchants, including Wal-Mart Stores Inc., Target Corp. and Home Depot Inc.
"Banks are largely using (debit-card fees) as an opportunity to bash regulations that they don't like," Dodge said.
But he doesn't expect consumers to abandon debit cards any time soon. He noted that consumers have flocked to debit cards over credit cards in recent years, a move driven in part by their hesitancy to accumulate debt.
"Any effort by the banks to steer customers away from debit would run headlong into a consumer sentiment that prefers debit," he said.
'That hits all of us'
Merchants, meanwhile, have begun providing their own incentives for customers to use cheaper forms of payments - some gas stations, for instance, offer discounts for customers who pay with cash - and Dodge expects that to continue.
Another issue retailers have run up against recently: Visa Inc. and MasterCard Inc. plan to raise debit-card swipe fees on the smallest purchases to the maximum allowed under the new payment caps, Bloomberg News reported last week.
That means stores that process mostly small-ticket transactions could end up paying more, Dodge said.
In the end, consumers stand to lose as banks navigate "rushed and sloppy" regulations, said Trish Wexler, a spokeswoman for the Electronic Payments Coalition, an advocacy group of credit unions, banks and payment card networks.
"The banks and the credit unions that issue debit cards that saw their revenues slashed by half are having to make some tough decisions," she said. "... That hits all of us in our pockets."
