Some Thoughts on Bank of America’s Debit Card Fee Plan

I woke up to several emails this morning about Bank of America’s new plan to charge a $5 monthly fee to debit card users if they use those cards for purchases:

Bank of America will begin charging a $5 monthly fee at the beginning of next year for customers who make debit card purchases.

Whether you use your card for one purchase a month or 20, you will pay $5 per month starting in 2012. It doesn’t matter if you select “debit” or “credit” at the point of sale.

If you don’t use your card at all, you won’t be assessed a fee, and you can still use ATMs as much as you want without getting hit with the new charge. Plus, customers with certain premium accounts will be exempt from the charge.

Obviously, this is big news for Bank of America customers, but I think the impact of this will affect the customers of other banks as well.

A few Bank of America customers will jump ship. Most will not. While this type of fee is annoying, most Bank of America customers affected by this fee will largely ignore it and just pay it each month. Some will jump ship, sure, but the bank wouldn’t be charging this fee if they didn’t believe it would be a net gain for them.

Should you jump ship? If you rely on your Bank of America debit card for making purchases, this will essentially become a $60 a year fee. That would be incentive enough for me to jump. However, I probably wouldn’t jump immediately. Why?

I expect some other banks to follow suit. Bank of America wouldn’t be making this move if they didn’t believe it would help their bottom line. Given that, I fully expect other banks to match this move in the next year or so.

Thus, if I were with Bank of America and thinking of jumping, I wouldn’t jump until the end of the year when I can see if any other banks are adding similar fees. The longer you wait, the more time you have to see if the banks you’re eyeing are adding such things.

Other banks will laud their free debit card usage in an effort to attract customers. Over time, fee-free debit card usage at the point of sale will become a feature to promote rather than an expectation, sadly.

This may push people to simply use credit cards exclusively at the point of sale. This is what I do already, so such fees by my bank wouldn’t make any difference to me. I simply use a credit card for all point of sale purchases, then pay off the balance in full every month.

Should you make this leap? Using credit cards as your primary purchasing vehicle requires some level of self-control. If you have a history of getting into debt trouble with credit cards, I wouldn’t make this move.

Of course, my belief is that this type of move is part of what Bank of America is hoping for. They’d rather have people carry a balance on a Bank of America credit card and one way to do that is to gently discourage people using their debit cards to buy things.

All in all, this isn’t a great move for banking customers, but it’s not devastating, either. If I were the customer of a bank making a move like this, I would probably be tempted to switch banks, not just because of the fees, but because it sends something of a signal that I wasn’t a fan of a move like this.

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  1. NMPatricia says:

    I appreciate your take on this. I indeed opened my paper to this news. We bank with a smaller local bank. It will be interesting to see how other banks go. I hadn’t thought of using my credit card instead of my debit card. What raced through my mind is that this may push some into the “cash” economy. I have my money for the month and I need to make it last except for those few things which I do charge.

    However it also crossed my mind that it just feels like the banks are trying to get more and more money out its customers. As with other industries (such as the airlines) they give less and less service for more and more money. Definitely discourages commerce on my part!

  2. Jennifer says:

    I agree with everything you said. I also bank with a smaller local bank, and I will be watching to see if they intend to follow BOA’s suit. If so, I will likely do as NMPatricia indicated, and go all cash. Why? Because even if I pay off my credit card in full each month, the total of purchases currently made with my debit card each month would impact my debt to credit ratio if I used my credit card for them. If using all cash gets to be too big of a hassle, I will then seek out the banks promoting free debit card usage as a perk. I refuse to give in to the banks’ tactics of taking more money and giving less service.

  3. Katie says:

    Some other banks have already announced they’re following suit; there’s an NYT article about it this morning. Wells Fargo is one of those, but said their fee would be $3. I believe Citibank is the only major bank that has definitively announced that they wouldn’t be charging a fee for now.

  4. Tracy says:

    Although the flipside is, the longer everybody waits to see what banks add the fee, the more banks will feel comfortable adding the fee. So that only works in a very minimal scale.

    Personally, I would flip immediately. If nothing else, to send a message to the banks. I already quit a bank when they tried to make it mandatory that I DO use my debit card xyz times a month or they would charge fees.

  5. PK says:

    I’m also interested in what stores like Aldi’s will do considering they ONLY accept debit cards.

  6. lurker carl says:

    Another reason to join your local credit union or switch to a regional bank. Do it immediately. It won’t be much longer until Bank of America, ING and the rest of the world’s megabanks aren’t too big to fail.

  7. AnnJo says:

    Jennifer @2, you are wise to be aware of that problem. Cash is one solution but another work-around is to pay your credit card off more than once a month. Since I have high credit limits, it doesn’t happen often, but if I charge a major purchase that will take me over one-third my credit limit, I make a payment right away, to bring it back down before the end of the billing cycle.

    I resent this fee, but I don’t blame Bank of America for imposing it, I blame federal bank regulators who are incapable of competently regulating banks on the issues that are likely to collapse our system, but insist on micromanaging the trivial details of the banking business.

    This fee is being imposed to replace revenue the banks are losing because of a new regulation prohibiting them from imposing a merchant’s fee for use of debit cards.

    Until now, I used my debit card at most once or twice a month where credit is not accepted; I put everything else on my rewards credit cards and pay them off in full every month. I will switch to cash for those transactions, but I resent the loss of convenience to feed the insatiable control-freaks in Congress and at Treasury. And I doubt that Congress will allow us to continue using cash for more than another decade or so.

  8. valleycat1 says:

    I can also see a lot of people switching back to checks or cash. More people writing checks again will slow down checkout lines & make more work for the stores AND banks.

  9. Laura in Seattle says:

    I recently switched my checking and savings accounts from Chase to a local credit union. My bf has his checking account with Bank of America. After hearing about the fee, he’s now switching to the credit union as well.(And he’s going to let BofA know WHY he’s switching.) The credit union’s customer service is great, their website is easy to use and their interest rates are much better than the big banks around here. Credit unions FTW.

  10. Sonja says:

    I bank with BofA and I am aggravated by the charge. I remember back in the early ’90′s when we were all given debit cards so the banks could save money on check processing expenses. I will not leave BofA because I get free checking w/free checks because I have a mortgage with them. I will be writing more checks and using my credit card more. I pay off the credit card balance every Friday (payday) anyway. I have business accounts with Regions and they are charging $4 a month if I use my business debit card even one time, and they just raised the minimum avg daily balance required for free small business checking for the second time this year.
    Unfortunately my credit union charges to use their billpay service and they have awful ATM fees, so no incentive for me to have more than savings with them.

  11. Mary says:

    I will be leaving BofA very soon for a local credit union. I’ve been meaning to do it for a while now and this extra fee was the extra push I needed.

  12. Julie says:

    I bank with Citibank, but only because a few years ago, the regional bank we used was bought up by another bank, which was then bought up by Citibank. I haven’t had a problem with Citibank ever (they were very helpful when my husband’s PIN was stolen, and several thousand $$$ was taken from our accounts), but if they do start charging for ATM use, I’ll be investigating the smaller, regional, local banks/credit unions again.

  13. Mister E says:

    Are monthly fees uncommon at American banks?

    I’ve been paying monthly fees for years and years, usually waived if a minimum balance is kept.

  14. Andrew says:

    AnnJo–Congress imposed those transaction fee limits not necessarily because they are control freaks but, rather, because the lobby representing retailers (who hate those fees) spoke louder and shoveled out more campaign contributions than the bank lobby did.

    Not to dispute your implicit point that Congress is pretty awful!

  15. Rob O. says:

    I’ve been strongly opposed to debit cards all along and this just makes my stance all the more justified.

    With a debit card, you usually have only 2-3 days to report fraudulent or erroneous charges to the bank, whereas with a credit card, this is commonly 60-90 days. A thief who obtains or clones a debit card along with its PIN may be able to clean out the consumer’s bank account, and the consumer will have no recourse.

    I don’t have anything but a gut feeling to back this up, but I’ll just bet there’s a strong correlation between the rise of debit card use and identity theft cases.

    For well over 10 years, we’ve use a dividends-earning credit cards and pay the balance in full each month – no exceptions. We sock away as many purchases as we can on the card to maximize the cashback. And once the dividends have been maxed on one card, we switch to a second to finish out the year.

  16. Amy says:

    This is interesting. Our credit union has essentially done the opposite. If you use your debit card more than 12x per month, they pay a better rate of interest on your account, which encourages you to use the debit card. I wonder if BofA is trying to discourage use of the debit card, or just knows that it is so ingrained for most people now that they feel most will pay for the conveniance.

  17. Steven says:

    “I would probably be tempted to switch banks, not just because of the fees, but because it sends something of a signal that I wasn’t a fan of a move like this.”

    My sentiments exactly. Customers shouldn’t let the businesses they work with push them around. But I’m afraid we’ve become so complacent that we’ll grumble about it, but do nothing. Only time will tell.

  18. Julia says:

    This is exactly why I left Keybank many years ago.
    When they first started charging to use my ATM card to buy stuff, I complained. They told me to get a different type of card, one with the VISA logo. This was back when banks were just starting to issue these. So I used my new VISA-logo debit card for a couple years, and then they started charging for that. That’s when I switched to a credit union.

    If I was with Bank of America, I would jump ship immediately.

  19. Nick says:

    They want people to leave. It costs money to have small accounts and this is a way of weeding those out. I am for it. You only have to have an average balance greater then $1500 to not be charged the fee. If you don’t have that you are just costing the bank money to service you.

  20. Kate E. says:

    I’m definitely leaving Bank of America over this. They’re already charging me $12 per month for my account, and now they’re adding $5 on top of that. Too much! I just sat down to research a new bank when I noticed this article on my feed reader. I’ll also be informing BoA why I’m leaving.

  21. kristine says:

    Julie,

    Citibank is now charging 10/m to have a checking account, unless you leave 1500 in linked Citibank accounts at all times. Pretty steep. Hubby has checking there, but not savings, so this would hit him hard. I belong to a credit union, and his about to join me there. My credit union also gives you 3% interest on checking if you use your debit cards 5x a month, and have direct deposit. A lot better than a $5/m fee!

  22. Kathleen says:

    $60 per year is not worth the hassle of setting up direct deposit again, setting up all e-billing again, limking various accounts again, and finding a new bank. I’ll stick with BOA, thanks.

  23. AnnJo says:

    I confess I hadn’t read the fine print on this. If the fee can be avoided by keeping a minimum balance of $1,500, I don’t see what the problem is. You usually have to keep that much on deposit to avoid monthly fees anyway. Just think of it as part of your emergency fund and don’t touch it.

    Andrew, your point is well taken, but Congress’s venal motives are no excuse for its incompetence.

  24. Brittany says:

    So… it used to be standard practice for banks to charge for their service–charge for having checking accounts, charge for using a bank card, charge for certain transactions, etc. Then they starting waiving these fees for high-use/high-deposit customers (who earn the bank money in other ways). Then some banks started waiving fees for all customers (who may or may not earn the bank much other money). Then we because used to this norm. (As another commenter pointed out, account fees are pretty much the norm in most other countries.)

    Don’t get me wrong, I’m not a major bank sympathizer. I just think the “They’re charging more and more for less service!” is misleading and misrepresenting past realities. (I’ve been told by some friends that waiving fees for high-service users is “discrimination” against people with less money in the bank.) Banks are returning to previous levels of services, and we feel entitled to the perks we’ve gotten used to. Go elsewhere, if you want. That’s fine. But charging for a service instead of giving it away for free isn’t poor customer service or “pushing customers around”. It’s called “having a business.”

  25. Holly says:

    I do not bank w/BOA. My accounts are w/2 regional banks and 2 credit unions. My debit cards are only w/the 2 banks.

    Since I live in metro Chicago I ONLY use my debit cards at the bank ATM. We have just had WAAAY too many problems w/skimmers on non-bank (retail, gas station, convenience store….) units.

    However, if you do NOT want to use a credit card (or cannot) just start writing checks. Even Aldi takes personal (local) checks. I suspect if MANY of us started to do this the big retail stores and the banks themselves would discover it was NOT cost efficient. It takes a LOT of time to process checks both in the retail checkout line and at the bank.

    I am willing & can spend more time to teach the stores and banks this lesson. At the very least it just might create more jobs which we do need.

  26. Alana says:

    According to the New York Times article, you need $20,000 in your Bank of America account to avoid the new fees. Unless you have a mortgage with them. That’s a lot more than the $1500 or so most banks require to avoid some fees. I have Wells Fargo, which says it will also start charging fees soon — this is the push I needed to actually switch to a credit union or online bank. This is one of the reasons I don’t have automatic bill pay or anything else linked to my checking account — it makes it too hard to change banks, in addition to leaving you vulnerable to being overcharged (happened to me several times).

  27. SwingCheese says:

    My husband and I switched to a local credit union a little over a year ago when we moved, and we haven’t looked back. Our credit union gives us a higher interest rate and just more personalized service! (This was a big drawback – when our previous bank was purchased by Bank of the West, we got tripped up on dubious fees and their customer service left a lot to be desired!) Also, when it comes to identity theft: one of my friends also banks at the same credit union, and was the victim of online identity theft on a small(ish) scale – I think he was taken for about $1200. The catch is that he didn’t notice it for about three months (it was taken out in $300 chunks over a period of time). However, when he reported it to the credit union, they worked with him right away and did reimburse him for the entire amount. I was pleased and comforted at the quick action taken by the credit union.

  28. slccom says:

    Get revenge — use checks exclusively!

    In a slightly unrelated note, I got a check for a grand total if three cents from my former health insurer. Talk about stupid! And yes, I cashed it. I wonder what that cost them?

  29. Lindsey says:

    I have so many automated payments set up with b of a it will be a pain to change. The $1500 minimum is usually there but I have ordered a paypal debit card which will be free and transfers are immediate as I use it funds are pulled from checking account. The paypal works at ATMs too.

  30. zoranian says:

    Not to get into politics, but banks are basically being forced into charging fees for debit cards due to some recent legislation (sponsored by major credit card companies). Anytime you “swipe” your card, the debit or credit card company gets a percentage from the retailer, up to 3%. With the new legislation only credit cards are allowed to collect that fee, the debit card companies will have to make up for it somewhere. Gee, I bet consumers will have to switch to using credit cards instead, I wonder who thought of that?

    It’s not a democrat or republican thing, it just upsets me that the entire government let this happen due to some well paid lobbyists. I expect that credit unions and other debit cards will be forced to charge debit card fees soon, or raise fees elsewhere.

  31. Maggie says:

    I moved my checking account to a credit union about 2 years ago when B of A started charging me to make check copies and wanted to bill $12 per month for me to maintain a checking account with them. I also had a credit card with B of A and moved that to the credit union. I had had that card through many bank iterations (the original bank was sold about 6 times and finally became B of A. )over a period of 30 years yet they increased my interest rate from 7.0 to 13.99 stating that since I was such a good customer they were giving me their best rate. Bull! My credit union gives better service with cheaper interest rates and no fees. I say let Bank of America know how you feel by moving to a credit union. Long time use does not mean anything to them.

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