In one of the first tangible fallouts from new federal restrictions on debit card "swipe fees," Wells Fargo bank and other card issuers are launching test programs to charge some debit card users $3 a month if they use their cards.
"We are joining other debit card insurers in testing a monthly debit activity fee ($3) on a subset of checking products for customers that prefer to use their debit card," Lisa Westermann, Wells Fargo's assistant vice president of public relations for card services and consumer lending, said in an e-mailed statement.
"Customers will not be charged a fee if they do not use their debit or ATM card to make purchases or payments," she added.
Swipe fee fight fallout Starting Oct. 1, 2011, banks can charge only about 21 cents per swipe to merchants whose customers make debit card transactions. Currently, those fees, also called interchange fees, are 1 percent to 2 percent of the purchase amount -- or 44 cents on the average debit card purchase. Frank Keating, president of the American Bankers Association trade group, said in June the debit swipe fee cap would cause a 45 percent drop in revenues and predicted lenders would charge "higher fees for basic banking services."
The new $3 fee appears to be a move in that direction. Starting Oct. 14, 2011 -- two weeks after the new swipe fee caps take effect -- Wells Fargo debit card customers in Oregon, New Mexico, Georgia, Washington and Nevada will be charged a "debit card activity fee" if they use their cards to make purchases. The fee will appear on monthly statements beginning Nov. 14, 2011, according to Wells Fargo fee disclosure documents. The fee applies if customers make at least one purchase during the billing cycle on a card linked to a checking account.
A spokesman for Chase Card Services confirmed that the bank began testing $3 a month fees on basic checking accounts "in a small market back in February."
"The test continues, but has not been expanded," Thomas Kelly said in an e-mailed statement.
Getting poll results. Please wait...
Federal limits on fees
The changes are a result of Federal Reserve debit card interchange fee limits the agency was told to write under the Durbin amendment to the Dodd–Frank Wall Street Reform and Consumer Protection Act signed into law in 2010. Even before the Fed finalized the debit rules, banks were already eliminating debit card rewards programs, which are financed by merchant interchange fees.
Debit cards are the No. 1 noncash payment method in the United States. The cards are a convenient way for customers to access funds held in checking and savings accounts.
Poll: Many customers would stop using debit card
Some consumers may rethink using their cards because of the monthly fees, which would come to $36 a year with monthly debit use.
An Associated Press/GfK poll conducted in June 2011 found that 61 percent of respondents with debit cards said they would switch to another form of payment if their bank instituted a $3-a-month usage fee. Only 38 percent said they would keep the debit card. Likelihood of dumping the debit card increased as the monthly fee rose. Asked how they would react to a $5 monthly fee, 66 percent said they would switch. The number grew to 81 percent if charged $7 a month. Most were likely to switch to cash, then checks, then credit cards.
Banks may not feel they have much choice: During Wells Fargo's July 19 second quarter earnings call, Chief Financial Officer Timothy Sloan said the cap on swipe fees will cost the bank $250 million per quarter beginning in the fourth quarter of 2011. "We expect to recapture at least half of this through volume -- half of this over time through volume and product changes," he said.
Westermann said the $3 usage fee is waived for some checking accounts and debit card users should check with their local bank branch to see how they may be impacted.
She adds: "We regularly review our pricing and take into account the needs of our customers, industry trends, the market competition, and our cost of doing business. Our goal is to set a fair price that is consistent with the value of each product or service."
If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.
Three most recent Emerging payment systems: Prepaid, debit, gift cards stories:
5 reasons there's a hold on your gift card – While gift cards are convenient for buying all kinds of goods and services, their funds can be subject to holds for a variety of reasons. Knowing about potential roadblocks in advance can help you avoid embarrassing situations at checkout ...
Did you like this story? Then sign up for CreditCards.com’s weekly e-newsletter for the latest news, advice, articles and tips. It's FREE. Once a week you will receive the top credit card industry news in your inbox. Sign up now!