"We are not surprised the CreditCards.com poll found widespread consumer displeasure at the spate of new bank fees," stated Jean Ann Fox, director of financial services for Consumer Federation of America, a coalition of consumer advocacy groups.
The scientific survey was conducted Oct. 7-9, 2011, by GfK Roper Custom Research North America using random digit dialing to contact 1,005 adults, 689 of whom said they were debit card users. (See poll methodology.)
The poll found that debit card users say they'll take the following alternative steps if faced with new debit card fees:
Pay with cash instead (81 percent).
Switch to a bank that doesn't charge a fee (78 percent).
Stop using debit cards (68 percent).
Pay with a credit card instead (42 percent).
Beth Robertson, director of payments research for Javelin Research consulting firm, says she's surprised that credit cards weren't higher on the list of options and cash lower.
"People were switching to debit as a replacement for cash," she says. "I'm surprised that cash is so high and credit cards are significantly lower. I know that banks are going to be actively working on getting people interested in credit cards again."
Federal interchange caps Federal restrictions on interchange fees -- the amount that banks and credit card networks collect from merchants whenever customers swipe their debit cards -- went into effect Oct. 1, 2011. Swipe fees will be capped at 21 to 24 cents per transaction, compared to 44 cents previously collected on the average debit card purchase. Banking industry executives estimate the caps will cut bank revenues by nearly 40 percent. Banks are attempting to recoup their losses by eliminating free checking, adding debit card use fees, wiping out debit rewards programs and laying off workers.
There are currently no such restrictions on credit card interchange rates, so banks have an incentive to encourage greater credit card use. "With credit cards, there is a potential for interest earnings, too," Robertson notes.
A September 2011 study by the Federal Reserve Bank of Boston found credit cards were the "closest substitute" for debit cards. It also found that consumers were more likely to use debit cards if the cost associated with swiping them -- such as monthly use fees or one-time sign-up fees -- were low.
Credit counselors say credit cards can be good stand-ins for debit cards only if consumers pay their balances off in full each month and avoid interest charges.
"Once a consumer becomes used to the ease of electronic payment and not having to carry a lot of cash, there is that advantage that credit cards offer," Robertson says.
"You can't use cash in as many situations. There's limited online use of cash through money transfer services like Western Union," Robertson says. "There are situations where a card payment, whether its credit card or prepaid, is desirable. I'm surprised that credit isn't higher in the poll."
Debit card use fees
BofA was the first major bank to announce permanent debit card fees. Other national banks, such as Wells Fargo and JP Morgan Chase, are testing $3 debit card fees in select markets. The BofA fees will be assessed to nonexempt accounts in any month when users make at least one in-store or online purchase with their debit cards. They will not be charged if they use their cards to make ATM cash withdrawals or for online bill payments. Customers with premium or high-dollar accounts will enjoy free debit card use.
Asked how high the fee would have to be before they switched from debit cards to another form of payment, debit card users polled identified an average tipping point of $3.90 -- $1.10 less than BofA's $5 fee.
For many respondents, even $1 was too much to pay. Nearly half (44 percent) said they would switch to another form of payment if just a buck were charged. Another 14 percent said $3 would send them searching for options and 22 percent said $5 was too much. In all, nearly four out of five debit card holders (79 percent) said they would stop using their debit cards if hit with BofA's $5 fee.
"I think there will be a reasonable number that might switch," Robertson predicts. A BofA spokeswoman did not respond when asked earlier this month how the bank determined how much to charge for the debit card fee.
Consumers who switch banks to avoid paying a monthly debit card fee will have a hard time comparison-shopping for a lower-cost account.
-- Jean Ann Fox
Consumer Federation of America
U.S. Sen. Richard Durbin, the Illinois Democrat who proposed the debit card interchange restrictions, has come under fire for the fallout from his legislation -- namely, higher banking fees for customers. But Durbin has defended the new law and urged disgruntled debit card users to "vote with your feet" and "find a bank or credit union that won't gouge you." At least one major credit union -- BECU -- has reported a spike in new accounts that it directly attributes to BofA's new debit card fees.
Switching not so easy Switching banks may be easier said than done, however. Several consumer advocates and banking industry experts note the difficulty faced by consumers who attempt to switch banks in search of lenders that don't charge debit cards.
"It would be unfortunate if they leave one bank, open a new account and this account also turns out to really not meet their needs," says Susan Weinstock, director of the Safe Checking Project for the Pew Health Group.
Her group conducted a study of checking accounts and found an average of 111 pages of disclosure information that consumers had to sift through to get basic information about account terms. The problem: There are at least 45 different fees on many checking accounts. Some banks use different names for the same fee, making apples-to-apples comparisons difficult. "Our conclusion is that it's nearly impossible," Weinstock says.
Consumers should be able to compare checking accounts just as easily as they can food products when they read nutritional labels, she says. Ideally, banks should post this information on the Internet, so "you can go online and say this checking account has these terms and conditions. This will work for me. This one doesn't," Weinstock says. "That way, you would be able to compare the bank account that's right for you."
The Safe Checking group has proposed a one-page checking account disclosure document -- similar to the simplified Schumer Box contained in credit card offers.
Appeals to financial watchdog
Both Pew and the consumer federation have urged the new federal consumer financial protection watchdog agency to intervene and require simple disclosure. Although the Consumer Financial Protection Bureau issued a statement indicating it "has the ability to simplify checking account disclosures," there are no immediate plans to do so. The bureau is operating on a limited basis while awaiting the U.S. Senate's vote to confirm a director.
Adds Fox from the consumer federation: "Consumers who switch banks to avoid paying a monthly debit card fee will have a hard time comparison-shopping for a lower-cost account. Many banks don't provide their full fee schedules and account terms in easy-to-use format on their websites or at branches. Defecting accountholders need help from the Consumer Financial Protection Bureau to make sure banks have to disclose all account costs in a standard format so they can spot the best deal for the way they want to use an account."
In addition, some banks make it difficult to close an existing account by tacking on account closing fees and delaying closure until all items have been cleared from the account. One congressman -- Democratic Rep. Brad Miller of North Carolina -- has introduced a bill to streamline and speed up account closing procedures.
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Adds Robertson, the payment industry consultant: "For people with multiple accounts, it's not that easy for you to switch all of your business to another bank. It would be easier for somebody who only has one account. You might consider it more of a hassle in the long run to say, 'I'm leaving.'"
"BofA made a mistake in announcing they wouldn't charge the fee to all accounts," Robertson says, adding consumers who might have been exempt from the fees may have been needlessly outraged. "They don't know whether they're in the category that qualifies for an exemption or not, so they instantly have this reaction of, 'Well, I'm not going to pay that.'"
She adds, "Instead of making some generic announcement, they probably should have let people know you would not be charged a fee if you had X, Y or Z relationship and this type of account."
Debit cards rise in popularity More than two-thirds (69 percent) of the 1,005 adults surveyed said they owned debit cards -- payment cards that allow you to access money held in a checking or savings account. The cards have become widely popular in the last several years and pushed debit cards to the No. 1 non-cash payment method in the U.S. Debit cards are especially popular among young adults, who love the convenience of swiping for everything from coffee to fast food to clothing.
Asked how their debit card payment habits have changed over the past year, 42 percent of cardholders in the poll said they are using their debit cards more often today than a year ago. About one third (36 percent) reported using debit cards less often; and seven percent don't use their cards for purchases .
Those who said they were using debit cards less often had switched to cash (59 percent), credit cards (24 percent) and checks (15 percent).
The survey was conducted Oct. 7-9, 2011, by GfK Roper Public Affairs & Media on behalf of CreditCards.com. Random digit dialing phone interviews were completed with 1,005 adults 18 years old or older. The raw data were weighted by a custom designed computer program that automatically developed a weighting factor for each respondent, employing five variables: age, sex, education, race and geographic region.
The survey had a margin of error of plus or minus 3 percentage points on the full sample, with a 4 percent margin of error for debit cardholders.
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