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.
Unfortunately, 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|