New Debit Card Fees: Who’s Affected and What You Can Do

Gabrielle Karol
Posted

We always knew there were consequences to spending money we didn’t have, but now some banks are punishing customers for spending what they do have.

Soon Bank of America will be charging a $5 monthly fee if you choose to swipe your debit card. Other banks—including Wells Fargo and J.P. Morgan Chase—are slowly rolling out similar penalties.

This new practice has outraged consumers and politicians alike. Now Washington is even considering legislation to protect Americans from unfair fees.

Why Fees—and Why Now?

With millions of Americans addicted to credit cards—and the subsequent overspending they allow—using your debit card has become more popular than ever for those watching their budgets. In fact, a recent Associated Press poll showed that 2/3 of consumers use debit cards more frequently than credit cards.

Debit Card FeesUnfortunately, that reliance on debit cards has become a target for banks looking to pad their bottom lines. In this down economy, many banks themselves are struggling financially. Additionally, a new federal regulation has capped the amount banks can charge merchants each time a consumer swipes their debit card, cutting into their potential profits.

While the new cap only lowers the amount to 24 cents from the current average of 44, it really adds up: Banks are expecting a $6.6 billion loss in revenue this year alone. (Find out how you can bulk up your savings with this small trick. Read this.)

Bank of America has been hit especially hard. Thanks to their relationships with 58 million consumers and small businesses, the bank is preparing itself for a loss of $2 billion this year resulting from this new rule. And the bank was already hurting, due to significant losses in its mortgage portfolio. (That said, there was never a good reason for banks to be charging those fees in the first place. Read this to find out more.)

While we understand watching your bottom line—and looking for new sources of income—these new fees target the customers who will feel the effect of additional fees most: average Americans. In fact, not having a lot of money can hurt you, since the fees are often waived for customers who maintain a minimum balance of, say, $20,000 in the bank.

The New Charges, Explained
Starting in 2012, Bank of America will impose a $5 flat fee each month you use your debit card to pay for purchases directly. If you use your debit card only to take out money from the ATM, you’ll remain fee-free.

So far Bank of America has received the most flack because it’s the biggest bank, levying the highest fee. However, many banks are upping their monthly service fees, canceling debit rewards programs or changing the qualifications for opening checking accounts. (Check our handy chart below to see who’s doing what.) In fact, as of this year, only 45% of checking accounts are free, with no strings attached, down from 65% in 2010. Some experts believe the new fees will soon become as commonplace as those for checked baggage on airlines. (Find out the most annoying airline fees: read this.)

That said, the growing outrage from consumers—many of whom are threatening to switch banks—may help put an end to this trend before it catches on. In a poll by Time Moneyland, 75% of people polled said they would leave Bank of America due to the new fee. President Obama has spoken out against the fees as well, saying customers deserve to be treated “fairly and transparently,” and calling on the Consumer Finance Protection Bureau to protect consumers. (Read more about the Bureau here.) Now a member of the Financial Services Committee has introduced a bill that would prevent the recent trend of banks imposing fees as high as $10 to close an account, making it easier for customers who don’t agree with the debit card charges to relocate their money.

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If you’re among those affected by these fees, you have options beyond complaining to your bank and hoping for change. The New York Times estimates that it will take only 90 minutes or so to switch your money to a new account. Some major banks are promising that they will not impose the new debit card fees (though they may be changing their service fees), and smaller banks, online-only banks and credit unions are far less likely to adopt them.

Check out this chart to see whether you may be affected. And if you’re looking for a better checking account, go to FindABetterBank.com, which will search for your best option based on your individual preferences and criteria.

 

Bank What’s Changed? Does It Affect You? Active?
Bank of America $5 fee for debit card use Yes, if you don’t have a BofA mortgage or $20,000 balance Early 2012
Citibank Higher monthly service fees for many accounts; higher minimums to qualify for free accounts Depends on your checking account; read this for details December 9, 2011
HSBC Higher ATM fees for using competitor’s bank ($2.50 vs. $2) If you take out money at a non-bank ATM In effect
J.P. Morgan Chase $3 fee for debit card use; no more debit rewards program; charge for receiving paper bills Debit card fees apply to some accounts opened in Wisconsin; canceled rewards affect all; if you receive bills in the mail In effect
Regions Financial Corp. $4 fee for debit card use Some consumer checking accounts In effect
SunTrust Banks $5 fee for debit card use; no more reward points Debit card fees for EveryDay Checking accounts opened since June; rewards canceled for all In effect
TDBank $2 fee for using non-bank ATM If you take out money at a non-bank ATM In effect
Wells Fargo $3 fee for debit card use; no more debit card rewards Fee for checking accounts opened in Georgia, Oregon, Nevada, New Mexico, Washington; rewards canceled everywhere Debit card fees start October 14, 2011; rewards canceled October 15

 

  • Anonymous

    ridiculous.

  • Zoe

    Sucks. Thanks for so much helpful information in one place, LearnVest!

  • Zoe

    Sucks. Thanks for so much helpful information in one place, LearnVest!

  • Anonymous

    Don’t use your credit card more – go back to writing checks and using cash. Use your debit card ONLY to take cash from your bank’s ATM. Many businesses will offer a small discount for cash or check, if you ask ,to avoid credit card or debit card fees. 

    • kelseyb32

      Many financial institutions will begin charging for check use if they don’t already. It’s just another way to get back the fee revenue that they are losing from interchange. And it’s actually your debit card that will be impacted, not your credit card. If you can pay your credit card off right away, you could use that instead. But just note, some banks have said they are going to start charging more for credit cards as well.

  • Kgal1298

    What about credit unions would those be the better option? This didn’t really offer a solution, but I’m guessing that until legislation is in place were going to be playing this dance of the banks and that sucks. 

  • SCarter

    Ally bank is still fee free! :)

    • Lara Stewart

      Yep. :) So are ING, USAA and assorted small local banks and credit unions.

  • http://profiles.google.com/kathader76 Kathy Anderson

    It might be a good idea to talk to a banker about these fees before you go around switching banks.  I don’t have these fees with BMO/Harris, but I did ask my banker about these fees when I heard other banks were imposing them.  He said most likely they’re for debit purchases–when you have to enter your PIN during the transaction.  If you’re using your debit card as a credit card (a signature transaction) there probably isn’t a fee. 

    • Melanie E.

      Has this been confirmed anywhere?  I always use my debit card as a credit card.  I’m not comfortable punching my PIN into anything other than an ATM machine.  If this won’t affect using the card as a credit card, I won’t have to switch banks.

  • Andrea Jones

    I switched to a credit union about 10 years ago and I have been completely satisfied. There aren’t many fees to pay and if there are fees, they are very low.

  • johan diggs

    Really don’t know why this article DOSEN’T mention how significant the great Frank/Dodd bill affected the banks with a bus load of strict regs that take a hefty machete to the banks’ bottom lines. Banks aren’t charitible institutions, their survival is important to millions of entry level employees!

    • Kelly

      I agree, that bill is likely the culprit to the new fees.  Not that I agree with the new fees, but they are trying to make up for areas where they were making money before and can no longer do it. 

      USAA is a wonderful bank if you are eligible to be a member.  They also were affected by the bill, but rather than adding fees, they took away some of our benefits (points program for using our debit cards).

    • Sandra

      Wow, do you really think that US Bank is going to take care of its entry level employees with this new fee? No, it wouldn’t have mattered what bills were passed. Banks are going to see what they can get away with just as they did with dumping bad mortgage debt which they bet on going bad in the first place. Bank of America is setting a precedent that others will soon follow. We have been made to depend on paying everything with are debit card even if we are living within our means and now they are finding a way to make money off that fact. Ask the folks at Delux Check how they feel about debit cards.

      • Opheliabrinlee

        open an account with a credit union, they have different rules than banks. If any of the banks(I have two bank accts) I bank with start charging a fee. I’M MOVING TO MY CREDIT UNION. I HAVE ALREADY CHECKED WITH THEM. I can open a separate account under my main account. credit unions don’t take business accounts, so I’ll just do business under my own name, no problem 

    • Mcalisterll

      No, No No.  No machete to BoA’s bottom line.  they made $3.3 billion in profit in the 2nd quarter alone.   They’ll make a little less profit under this new regulation (but it still only costs them about five cents to process a transaction that they’ll collect 24 cents for from the merchant.  Poor banks!!! Hah!

      • SwitchHitter

        Thank you for this! A salient point that needs to be included in any conversation about these fees.

      • Monicahrgirl

        Profit MARGIN people; not just profit. 

  • http://neatfreakwannabe.blogspot.com Jenna

    Consider an online-based bank.  If you handle most of your banking online, do you need a physical branch location?  Banks with physical buildings cost more to run, which is why you either pay more or get less (like little or no interest) for your checking account.  There are many online banks that have free accounts (with interest!), no debit card fees, and will refund ATM fees if you do need to take out cash.  They’re FDIC insured just like the other banks.

    • Sarah

      ING has a checking account with a debit card, which I do not believe they are adding the fee to. One option might be to only use that debit card, as it is relatively painless to transfer money from your regular bank account to the online bank account. I think it could make budgeting easier. Keep bill money and a safety net in the regular bank account, if you have all your online banking and direct deposits set up there, and just transfer your spending money to online bank account and use the debit card attached to that. A bit of a pain, but it is one option.

  • http://twitter.com/jawilliams529 Julie Ann Williams

    How about U.S. Bank?

  • Lara Stewart

    I emailed Wells Fargo’s Board of Directors to let them know that I will close my account if the fee comes to my state.

    They continue to post record-breaking profits quarter after quarter in an economy where only 50% of the country’s income comes from wages and 10% of Americans can’t find a job. Hitting their customers when they are down is unethical.

    Here’s the address if you want to email them too: BoardCommunications@wellsfargo.com

    • Anonymous

      Love how proactive you are Lara!

    • Monicahrgirl

      You need to look at the profit MARGIN for a true indicator of how much an organization actually “pockets”. 

    • Monicahrgirl

      You need to look at the profit MARGIN for a true indicator of how much an organization actually “pockets”. 

  • kelseyb32

    Looking to switch to a credit union? http://www.asmarterchoice.org/ has a great search option to find a credit union near you. Credit unions are member owned and not for profit. Any “profit” is given back to their members in the form of lower loan rates, higher savings rates, and of course: lower fees. Vote with your feet and move to a financial institution that has you in mind rather than their bottom line.

  • Anonymous

    I’ve been very disappointed in the quality of LearnVest posts recently for several reasons:
    1) Biased tone: “with millions of Americans addicted to credit cards.”  Is this really the best way to express that Americans have been using debit more in order to control spending?
    2) Too many links to other topics (“read this”). I feel like I’m being spammed within the post.
    3) Missing the point.  The media has been focused on the B of A $5 debit fee, but the reality is that many banks are hitting consumers with significantly larger monthly maintenance fees.  Why does the $5 B of A debit fee make headlines, but not the $20 (or $10) Citibank maintenance fee?  The debit fees may be newer, but they are much lower than the maintenance fees that will soon apply.

    If readers want to avoid fees, try online banks (Charles Schwab: no minimum requirements and no foreign transaction fee; PNC: free with very minimal requirements) or local banks/credit unions.

  • Rachel

    I wonder what would happen to the banks if everybody people suddenly took their money out of the bank. Talk about “sticking it to the man,” huh?

  • GP

    Learnvest: Your articles usually present all sides of an argument, however it’s disappointing that this article does not mention how a large portion of debit card interchange fees go towards fraud protection and customer service support, and that cutting interchange fees cut into these operating expenses. The article also doesn’t mention that the Durbin Amendment was backed by major retailers who didn’t like money taken out of their pockets, so decided to shift the cost to the banks.

    We have too many sources of highly biased news to filter through…please do not add Learnvest to that list.

  • Guest Appreciating LearnVest

    You know, I’m just trying to give businesses money for services rendered. Why is that being so difficult…AND EXPENSIVE?!!?

    Debit card fees, check processing fees, fees for using paper statements. Good heavens, there is no escape. I just want to give people money in exchange for a product and be done with it. Why am I being charged for paying directly for services rendered? Why am I being charged for using the most efficient option to get people their money as fast as possible? I thought I was helping by being paperLESS…? 

    I understand having to find ways to make up bottom lines, etc. re: the banks’ circumstances. I understand that everything costs money. Going “green” costs money. Checks, debit, credit, whatever. There is a reality. I get it. This just isn’t the way to deal with it. Banks already get to use customers’ money to conduct business. Why are you charging me when you already get to take my money out for a spin?

    And I’m sorry … I don’t have a spare $25,000 to just having hanging out in an account. Who has that kind of money, what with the cost of education (cost of living in general) through the roof??? (Actually, even if I DID have $25,000 to escape the fees, I’d still hate this approach. It just doesn’t make any sense, and it’s not right. Period.)

  • Guest.

    I like that LearnVest cuts through the crap. It’s not always about being “neutral” or careful or coolheaded. LearnVest is good at looking out for its audience. Sometimes that means passionately sitting your colleagues down and telling them what’s up. I appreciate the straightforward articles. Sometimes bias is useful. At least it gives us a place to start.

    I was actually waiting for something like this to come out, specifically from LearnVest. Similar to a few other articles they’ve done, LearnVest found out what’s up, summed it up, and put it in a chart for us. What a service! They also made some useful recommendations (love the find-a-better-bank link). I didn’t read all the “Read This” references, because I was focused on this particular issue. But I am grateful. 

    Thanks for looking out for us, LearnVest. 

  • Beth Anne Saves

    I am in the process of switching all my bank of america accounts to ING Direct. 

  • Dma451

    If these banks think that we need them then they should think again.  We could all draw our money out and keep it in a secured place then where would they be???  I can draw it out as fast as it goes in and we are not far from doing just that!  I will never pay to use my own money.  Talk about a government controlled US of A we are becoming just that!  People we have to act to make our voices heard so let’s rock and roll and let them know we will not take this sitting down.  We will stand up and fight!

  • Sandra W.

    “GREED, GREED, GREED”!!   I wrote a letter to BOA, and they did get back to me.Saying all about there services they offer and do..I Don’t give a rats ass,about all there services.I told them I will be closing my accounts with BOA. Sure it’s only $5.00 a month. but dam it..It’s my $5.00 a month,why do I have to pay on my own money?I hope many people who also bank with BOA, close their accounts too.I live on a fixed income,and that $5.00 a month, I need to go toward my meds.and DR.bills. I have no med.ins.{ can’t afford it. }. There a new Credit  opening not far from my home, I will be going to check out and see if they charge a monthly fee,on Debit Cards.

  • Monicahrgirl

    Why do people expect banks to provide their services for free? We’ve paid for checking accounts (and checks for that matter) for as long as I can remember. I agree that their timing on introducing these new fee structures is not ideal. My theory is that they have been able to float everybody the use of debit cards as forms of retail payment for many years until the increased use of this convenience has now become too costly for them to continue to offer it at no charge. The way I look at it is that if I want the convenience of paying with my debit card, $5 per month is what that convenience costs. People pay for conveniences of this nature all the time; think of purchasing tickets and picking them up at will-call. You pay for that convenience. If you don’t want to pay the $5 per month for the ability to pay with your debit card, you can always use a regular old credit card and just pay it off each month, pay cash, or write a check. I’m sure I’ll be ripped to shreds for saying this. Rip away. And no, I do not work for a bank or financial institution. I’m a stay at home Mom. 

    • SwitchHitter

      Frankly the bank’s profit margin is not my problem. I am not going to lose sleep if they make less money, and I am sure the feeling is mutual. Instead of concerning myself with how the bank is going to recover any lost profit, I look at this fee as a customer service decision–a poor one as far as I am concerned. Passing this fee along to the consumers was not their only option, but it was the one they chose. I think that the banks are overlooking the psychological element of money, ie the frustration customers will feel about being nickled and dimed, but that’s just my opinion. Thankfully there are plenty of other options out there. Credit unions were fee-free before fee-free was cool. I’m a stay at home mom too and the financially responsible thing for ME to do is to switch financial institutions.

      • Monicahrgirl

        Voting with your feet (to steal one of Clark Howard’s terms) is the best way to protest any decision by a business that you patronize. I think if people are unhappy with what their current bank’s proposed fee increases are, then they should most certainly shop around. I’m weary of all these people who expect something for nothing. 

  • Sam

    So the $5 fee will not apply to just using the card at the ATM, but does anyone know if the $5 fee will still apply if you use the ATM/debit card for purchases but use it as the “credit” option and not “debit”?