Bowing to pressure, BofA drops controversial debit card use fee

Consumer groups herald major victory

By Connie Prater

Ending weeks of negative publicity, customer outrage and threats to close accounts, Bank of America Tuesday announced it would not go ahead with plans to implement a controversial debit card use fee.

"We have listened to our customers very closely over the last few weeks and recognize their concern with our proposed debit usage fee," said David Darnell, co-chief operating officer of the nation's second largest bank by assets. "Our customers' voices are most important to us. As a result, we are not currently charging the fee and will not be moving forward with any additional plans to do so."

Consumers Union, the advoacy group that wrote to bank CEOs urging them to rescind the fees and encouraged account holders to switch banks, said BofA's decision to back away from the fee was a demonstration that consumers have power to shape the marketplace.

"Consumers have the power to make the big banks back down from unfair practices if they raise their voices and vote with their feet and their dollars," Norma Garcia, manager of the group's financial services program, said in a statement. "In the end, Bank of America understood that it risked losing too many valuable customers by charging an unfair debit card fee."

Added Pamela Banks, senior policy counsel for the consumer group: "The public backlash over debit card fees should serve as a big wake-up call to banks that they can't take their customers for granted. While banks may come back with other fees in the future, they'll be gauging public reaction carefully. Consumers should be on the lookout for new fees and remember that if they're not happy with how they are being treated, they should shop around for a bank or credit union for a better deal."

Bank of America planned to start charging some customers $5 in any month that they used their debit cards to make purchases. The fee had been scheduled to be phased in starting in early 2012. Customers could avoid the fee by getting cash from BofA ATMs at no charge or using online bill payment services. "Premium" customers with high daily average balances (for instance, $20,000), those with Bank of America mortgages and Wealth Management/Merrill Lynch and U.S. Trust clients were to be exempt from the fees.

The move brought howls of criticism from  consumers and consumer advocates. A CreditCards.com poll on debit card fees conducted in early October 2011 found that two out of three debit card users said they'll stop swiping their cards if their bank started charging usage fees.

BofA CEO Brian Moynihan told analysts during an Oct. 18 conference call on the bank's third-quarter earnings that the debit card fees were designed to encourage customers to build stronger relationships with the bank. "When we look at the profile of customers who have their entire banking relationship with us and those that don't, a lot of people can qualify, will qualify and do qualify not to pay fees that we've been talking about because they have their whole relationship with us," Moynihan said at the time.

The bank had said the fees would help minimize losses in revenues from merchant interchange fees. As of Oct. 1, 2011, large banks are limited in what they can charge merchants every time customers swipe their debit cards. A federal law passed as part of the Wall Street reform law of 2010 caps the swipe fees at 21 cents per transaction plus a few pennies extra for fraud prevention and other costs. Previously, banks received about 44 cents on the average debit card purchase. Banking industry trade groups estimated the new law -- called the Durbin Amendment -- would result in a 40 percent reduction in interchange revenue from debit cards.

Asked how BofA would recoup debit interchange losses without charging customers monthly usage fees, spokeswoman Anne Pace replied in an e-mailed response: "We will continue to structure our products to ensure that our customers understand what they are getting and how much it costs. Our business is highly competitive and we will continue to initiate actions to mitigate lost revenues (from regulatory actions) where and whenever possible."

She added: "Our strategy is to encourage our customers to bring more business to us by offering a broad base of products and solutions to them to better meet their financial needs and rewarding them for their relationship with us."

As consumer anger about charging bank customers fees for accessing their own money in checking and savings accounts grew, banks large and small began to back away from or avoid the fees. One industry analyst said BofA had no choice but to drop it's fee. 

"They would lose too much business to other banks -- especially now that even other major banks have announced they will not charge a fee. The consumer won this round!" said Beth Robertson, director of payments research for Javelin Research Strategy, a payment industry consulting firm.

"I think BofA (and other banks) will still try to drive consumers back toward credit cards," Robertson said in an email. "Many banks have also eliminated 'free checking' and will look for other opportunities to add new revenue (new services, fees for existing service options), drive consumers to less costly options (e.g.; self-service versus customer service representative; electronic versus paper), and reduce costs."

Published: November 1, 2011

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