Bank of America will become the first major bank to charge customers across the country a monthly fee to shop with their debit cards, part of a wave of changes that are eroding the low-cost model of banking that consumers have long enjoyed.
The $5 fee will debut next year for the bank’s basic checking accounts. It will apply only to debit card purchases and not to ATM withdrawals, online bill pay or mobile phone transfers. A spokeswoman said the bank is “adjusting our pricing to reflect today’s economics.”
The move is just one of the ways banks are overhauling consumers’ accounts in the wake of the financial crisis, which resulted in a regulatory overhaul for the banking system and a fundamental shift in the industry business model. Rather than charge the riskiest consumers the heftiest fees, banks are now spreading their costs more evenly among their customers.
For some banks, that has meant eliminating free checking or ending rewards programs. Credit card holders have found their spending limits slashed and their interest rates increased. And with a new rule taking effect Saturday that limits banks’ ability to make money from merchants, it also means paying for the privilege of swiping your debit card.
“I think we are going to see a little bit of a shift in behavior. We just don’t know how dramatic it’s going to be yet,” said Patricia Hewitt, director of debit advisory services for the consulting firm Mercator.
The move by Bank of America, the nation’s second-largest bank by number of locations, could clear the way for other banks to institute similar charges. Wells Fargo, the country’s biggest bank, will begin testing a $3 monthly transaction fee in five states starting Oct. 14. Chase piloted a $5 fee in February for some customers in Wisconsin but has not expanded the program.
Banks argue that the fees are among the unintended consequences of the wide-ranging financial overhaul passed by Congress last year. One provision, sponsored by Sen. Richard J. Durbin (D-Ill.), directed the Federal Reserve to set new guidelines for the fees that banks charge merchants each time a debit card is swiped.
The debate over these swipe fees, also known as interchange, became the center of an intense and expensive lobbying battle this summer as banks attempted to roll back the legislation. After that effort failed, the Fed issued rules that capped the fees at 24 cents for an average debit card transaction of $38 — roughly half of what the industry had been collecting. The new cap takes effect Saturday and is expected to cost banks billions of dollars.
“I’m actually surprised it took Bank of America this long,” said Richard Hunt, president of the Consumer Bankers Association, a trade group. “This was going to happen when Congress got involved in price fixing.”
In a statement Thursday, Durbin said the new rule would benefit small businesses, which have long complained that the swipe fees were onerous. He blasted Bank of America’s new fee as “overt” and “unfair.”
“Bank of America is trying to find new ways to pad their profits by sticking it to their customers,” he said.
Lawmakers and regulators have ridden a wave of populist unrest in recent years to institute several significant changes to consumers’ checking and credit card accounts — moves that the industry says has eaten into profits and forced banks to raise prices. Last year, the Fed prohibited banks from charging consumers overdraft fees unless they opted into the service. Before that, Congress overhauled the way lenders assess fees and interest rates on credit cards.
“Every time Congress takes a step to protect consumers, the banks use it as an excuse to raise fees,” said Mallory Duncan, general counsel for the National Retail Federation, a trade group. “That doesn’t mean Congress shouldn’t pass consumer protection laws.”
Hewitt said it is too early to tell how Bank of America’s new debit card fee will change consumer behavior. Roughly one quarter of debit card purchases are less than $10, a sign that many consumers use their cards as a replacement for cash. On average, American swipe their debit cards 16 times a month, she said.
“It’s going to take a while for this to play out,” she said. “It certainly could motivate some consumers either away from debit or to other payment forms.”
Consumers Union, an advocacy group, encouraged Americans to scrutinize their bank statements and complain about fees they do not like. The group also published several tips on Thursday for consumers seeking to switch banks as a result.
“There are a lot of banks and credit unions that will be eager to attract new customers unhappy with all the new fees that some big banks are starting to charge,” said Norma Garcia, manager of the group’s financial services program.