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Debit card fees could be new norm

Bank of America, Wells Fargo, Chase lead possible trend

Bank of America plans to charge customers a monthly fee for using debit cards for purchases beginning in early 2012. Bank of America plans to charge customers a monthly fee for using debit cards for purchases beginning in early 2012. (Kevork Djansezian/Getty Images)
By Ben Protess and Tara Siegel Bernard
New York Times / September 30, 2011

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NEW YORK - Bank of America, the nation’s biggest bank, said yesterday that it planned to start charging customers a $5 monthly fee when they used their debit cards. It was just one of several new charges expected to hit consumers as new regulations crimp banks’ profits.

Wells Fargo and Chase are testing $3 monthly debit card fees. Regions Financial, based in Birmingham, Ala., plans to start charging a $4 fee next month, while SunTrust, another regional powerhouse, is charging a $5 fee.

The round of charges stems from a rule, which takes effect tomorrow, that limits the fees that banks can levy on merchants every time a consumer uses a debit card to make a purchase. The rule, known as the Durbin amendment, after its sponsor Senator Richard J. Durbin, is part of the Dodd-Frank financial overhaul law.

Until now, the fees have been 44 cents a transaction, on average. The Federal Reserve in June agreed to cut the fees to about 21 cents. Although the fee amounts to pennies per swipe, it adds up across millions of transactions. The new limit is expected to cost the banks about $6.6 billion in revenue a year, beginning in 2012, according to Javelin Strategy and Research. That comes on top of another loss, of $5.6 billion, from rules restricting overdraft fees, which went into effect in July 2010.

Even though retailer groups had argued that lower fees were important to keep prices in check, consumers were unlikely to see substantial savings. In fact, they are simply going to end up paying from a different pot of money.

Or as Jamie Dimon, chief executive of JPMorgan Chase, put it after passage last year of the Dodd-Frank act, “If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger.’’

Chase is now charging customers for a paper statement. It also, like most other banks, scrapped its debit card rewards program. And customers that Chase inherited from Washington Mutual no longer enjoy free checking accounts.

The bank is also exploring a number of other fee increases, including for online banking, according to people with knowledge of the matter.

Bank of America’s debit fee is steeper than most of its competitors’, reflecting the broader challenges the bank is facing after the financial crisis. The bank has introduced an online-only account that charges customers for doing business at a local branch. It also plans to apply its new debit card fees to anyone who uses the card to make recurring payments like gym fees or cable bills.

Citibank is one of the few that said it would not introduce a charge for debit card use.

“We have talked to customers, and they have made it abundantly clear that ‘if you charge me to use my debit card, I would find that very irritating,’’’ said Stephen Troutner, head of Citi’s banking products.

Still, the bank has made it more difficult to qualify for free checking, among other moves.

Meanwhile, HSBC said that it recently increased an ATM fee - to $2.50 from $2 - for certain customers when they used a competitor’s ATM. It also recently introduced a debit transaction fee of 35 cents, although the first eight transactions are free.

And at TDBank, customers will now have to pay $2 for using ATMs outside their network.

Over the past few years, consumers have increasingly shifted their spending to debit cards from credit cards, in large part to curb their spending. But some analysts predicted that the fees could prompt consumers to return to credit cards - a more lucrative alternative for the banks.

Consumers have already begun to react to the changes.

Patrick Shields, 48, said he had decided to leave Citibank, where he has held a small-business account since 1986. He was contemplating opening a personal checking account, but realized he could do better at a credit union.

“At the credit union, they opened it free of charges, which Citi could not and would not do,’’ said Shields, who noted that a personal checking account would have cost more than the one he uses for his New York business. “Now I have both accounts covered, and I am fee-free.’’