Bank of America plans $5 charge for debit purchases
Other banks to follow
Bank of America plans to start charging customers a $5 monthly fee for using their debit card to make purchases. The fee will be rolled out starting early next year.
A number of banks have already either rolled out or are testing such fees. But Bank of America's announcement carries added weight because it is the largest U.S. bank by deposits.
Anne Pace, a Bank of America Corp. spokeswoman, said Thursday that customers will only be charged the fee if they use their debit cards for purchases in any given month. Customers won't be charged if they only use their cards at an ATM.
The fee will apply to basic accounts and will be in addition to any existing monthly service fees. For example, one of the bank's basic accounts charges a $12 monthly fee unless customers meet certain conditions, such as maintaining a minimum average balance of $1,500.
A fee for using debit cards is still a novel concept for many consumers and was unheard of before this year. But there are signs it may soon become an industry norm.
SunTrust, a regional bank based in Atlanta, began charging a $5 debit card fee on its basic checking accounts this summer. Regions Financial, which is based in Birmingham, Ala., plans to start charging a $4 fee next month.
Chase and Wells Fargo are also testing $3 monthly debit card fees in select markets. Neither bank has said when it will make a final decision on whether to roll out the fee more broadly.
The growing prevalence of the debit card fee is alarming for Josh Wood, a 32-year-old financial adviser in Amarillo, Texas.
Wood relies entirely on debit cards to avoid interest charges on a credit card. If his bank, Wells Fargo, began charging a debit card fee, he said he would take his business to a credit union.
If a debit fee became so prevalent that it was unavoidable, Wood said he's not sure how he'd react.
"I might use all cash. Or go back to writing checks," he said.
The debit card fee isn't the only unwelcome change for checking account customers are seeing either. The banking industry has been raising fees and scaling back on rewards programs as they adjust to new regulations that will limit traditional revenue sources.
Starting Oct. 1, a regulation will cap the fees that banks can collect from merchants whenever customers swipe their debit cards. Those fees generated $19 billion in revenue for banks in 2009, according to the Nilson Report, which tracks the payments industry.
There is no similar cap on the fees that banks can collect from merchants when customers use their credit cards, however. That means banks may increasingly encourage customers to reach for their credit cards, reversing a trend toward debit card usage in the past several years.
An increasing reliance on credit cards would be particularly beneficial for Bank of America, which is a major credit card issuer, notes Bart Narter, a banking analyst with Celent, a consulting firm.
"It's become a more profitable business, at least in relation to debit cards," Narter said.
This summer, an Associated Press-GfK poll found that two-thirds of consumers use debit cards more frequently than credit cards. But when asked how they would react if they were charged a $3 monthly debit card fee, 61 percent said they'd find another way to pay.
If the fee were $5, 66 percent said they would also change their payment method.
Bank of America's debit card fee will be rolled out in stages starting with select states in early 2012. The company would not say which states would be affected first.
Bank of America shares rose 9 cents, or 1.5 percent, to $6.25 in afternoon trading.
SAN FRANCISCO, Calif.—Bank of America has decided to charge its customers a $5 monthly fee for debit card transactions starting in 2012. Other big banks, including Wells Fargo and J.P. Morgan Chase are also testing debit card fees in certain markets.
But plenty of banks are still offering debt card services without a fee. Consumers Union is offering tips to consumers on how they can avoid new fees and what to do if they decide to move their money to another bank.
SAN FRANCISCO, Calif.—Bank of America is reportedly considering ways to scale back its plan to charge most of its customers a monthly $5 debit card fee according to Reuters.
The bank has indicated that it is exploring ways to allow more customers to avoid the fee, including maintaining a certain minimum balance, using direct deposit for paychecks or having a Bank of America credit card. No specific details have been officially announced by the bank.
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