Bank of America To Charge $5 Monthly Fee For Debit Card Usage

[Admiral Yi]

So, this is actually a terrible idea on Bank of America's part, and people will switch to the banks which aren't adopting this $5 a month fee?

It could be a terrible idea, but I doubt it.

BoA claims it will lose money on 24 cents/debit.  It's concievable that some other banks could keep 24 cents/debit as a loss leader and make up the difference in other fees, and that customers will a lot happier paying those (assuming Dodd Frank allows them) than monthly debit card fees.  Or it's possible that customers will be morons and switch banks without realizing that the new bank's fees are charging them for other things.

[Razgovory]

So, foreign languishites, what do you guys pay to use your debit cards?

I can't remember if you are Brit or an American.  My debit card was provided to me by the local bank in town.  I don't think it is a subsidiary of any other national bank.  I know the State puts its money in that bank (at least when Democrats are in control, when Republicans are in control they put in the other local bank in town).  At least they used to.

[OttoVonBismarck]

For the same reason they weren't charging a trillion dollar fee for each debit.  Price elasticity.

So, this is actually a terrible idea on Bank of America's part, and people will switch to the banks which aren't adopting this $5 a month fee?

You're being an idiot or a fucktard or a douchebag, your pick, maybe all three

Are you really as fucking stupid as you have acted the past few posts?

I make $.20 profit on every widget I sell. The government decides I can now only make a $.10 profit on every widget I sell, but they don't regulate the per-order surchage I can put on my sales, so I institute a $5 per order surcharge to recoup that lost profit.

Why wasn't I already charging that charge? Because it will lose me customers. Will it still lose me customers? Absolutely, but I'm estimating that it will still result in me being able to at least try and get back to the overall profit level I was at when I could make $.20 profit per widget.

Bank of America wasn't charging to use a debit card because they wanted you to use it all the time because they were making $.44 a transaction. Now that they can't make that anymore, the math becomes less great for them. They have a lot of liability with letting customers use debit cards. Further, there is some cost involved on their end, so that $.24 per transaction or whatever isn't pure profit. They never would have randomly added a $5 fee before because it would have lost them customers. Same as the widget surcharge fee.

Why are they considering it now? Well, they have people working for them who do an analysis. Based on the best information they have, they conclude that by adding the fee they will make x amount more money. That will be offset by Z, the amount of lost profit from customers who stop using or cancel their debit cards and customers who leave BoA entirely in anger. As long as Z isn't > X, then it was profitable.

It's the same reason Netflix raised prices, they had analysts who said "it will lose us this many customers but we will still make money and it gives us some long term advantages in certain areas." Just like the Netflix move, BoA could be wrong. Like any analyst, BoA's guys are making some assumptions based on good information from the past, the past doesn't predict the future. BoA could be fucking up with this, and it's always a gamble to fuck with your price, which is why, even if the analysis showed it would have been a net positive before Dodd-Frank BoA would have been hesitant to do it just because you don't fuck with your prices for no reason at all. But when your profit is being decreased for sure it might be time to take some risks to try and get some of it back.

The limit on interchange fees isn't all that banks are looking to recoup money on, the big one is that debit cards made it a lot easier to overdraw your account and pay the bank $35 for the privilege. It takes a bit more incompetence to bounce a check or accidentally withdraw too much money from the ATM. The loss of overdraft fees is a big hit to banks, and those fees are really most of the reason banks have been offering free checking and free debit cards for years. The more accounts opened the more money they made off those fees as long as those accounts had debit cards. Now that the money is gone we are moving back to the 80s and early 90s when most / every bank charged a minor fee to have an account, because without those fees your paltry checking account is doing very, very little for the bank.

[Martinus]

For the same reason they weren't charging a trillion dollar fee for each debit.  Price elasticity.

So, this is actually a terrible idea on Bank of America's part, and people will switch to the banks which aren't adopting this $5 a month fee?

I don't think so. Most people are reluctant to switch banks because the actual or perceived costs of switching (you usually have to set up a new account, file a bunch of papers, change your periodic payment orders, etc.) act as a succesful deterrent. I don't see anyone except the very poor* see $5 a month worth the hassle (and the very poor may fear switching banks as they may fail to get a credit rating allowing them to get a new credit card).

From that perspective, I think this is a brilliant move on BoA's part - they just hit the sweet spot where people would grumble but pay.

*Or bitches with too much time on their hands who would switch just on principle, but people like garbon are, thankfully, not very numerous.

[OttoVonBismarck]

I don't think so. Most people are reluctant to switch banks because the actual or perceived costs of switching (you usually have to set up a new account, file a bunch of papers, change your periodic payment orders, etc.) act as a succesful deterrent. I don't see anyone except the very poor* see $5 a month worth the hassle (and the very poor may fear switching banks as they may fail to get a credit rating allowing them to get a new credit card).

From that perspective, I think this is a brilliant move on BoA's part - they just hit the sweet spot where people would grumble but pay.

*Or bitches with too much time on their hands who would switch just on principle, but people like garbon are, thankfully, not very numerous.

People will 100% certainly switch banks over it. Just like when Netflix raised their prices, I can guarantee you analysts at BoA have already crunched numbers to arrive at an estimate of how many will switch banks over it. I do believe they will come out ahead, especially because BoA is getting a lot of press for this but a lot of our banks are now charging these fees. Several of the banks in my area now have $7-10 "monthly service fees" for checking accounts. You can get an exemption on those fees by having a certain "average daily balance" or by agreeing to do >$100 in direct deposits to that account monthly, but those fees are becoming part of consumer banking.

[Razgovory]

And people will 100% certainly not switch over it as well.

[OttoVonBismarck]

And people will 100% certainly not switch over it as well.

I'm sorry I forgot the internet still went down into the basements of the world, or I wouldn't have been surprised at such an inane, stupid comment.

[Martinus]

I don't think so. Most people are reluctant to switch banks because the actual or perceived costs of switching (you usually have to set up a new account, file a bunch of papers, change your periodic payment orders, etc.) act as a succesful deterrent. I don't see anyone except the very poor* see $5 a month worth the hassle (and the very poor may fear switching banks as they may fail to get a credit rating allowing them to get a new credit card).

From that perspective, I think this is a brilliant move on BoA's part - they just hit the sweet spot where people would grumble but pay.

*Or bitches with too much time on their hands who would switch just on principle, but people like garbon are, thankfully, not very numerous.

People will 100% certainly switch banks over it. Just like when Netflix raised their prices, I can guarantee you analysts at BoA have already crunched numbers to arrive at an estimate of how many will switch banks over it. I do believe they will come out ahead, especially because BoA is getting a lot of press for this but a lot of our banks are now charging these fees. Several of the banks in my area now have $7-10 "monthly service fees" for checking accounts. You can get an exemption on those fees by having a certain "average daily balance" or by agreeing to do >$100 in direct deposits to that account monthly, but those fees are becoming part of consumer banking.

Well, ok I was as usualy speaking in hyperbole, but the fact is less people will imo switch over this than they did with Netflix for reasons I mentioned. Retail banking services are considered some of the least elastic when it comes to customer switching.

[OttoVonBismarck]

Well, it's not just switching. Some non-negative number of people will opt out of having the Visa/Mastercard branded debit cards, and go back to just having an ATM card which is still being offered fee-free. The truth of the matter is though, unless you're a high net worth individual, Bank of America, under the new rules, probably doesn't care if you have a debit card and may even desire you not to have one.

[Eddie Teach]

I have free checking with Wells Fargo, grandfathered over from Wachovia. Sounds like the account type isn't available anymore for new customers though.

[Gups]

So, foreign languishites, what do you guys pay to use your debit cards?

Zilch. I don't know of any bank which charges for using debit cards.

[MadImmortalMan]

I guess they figure"Hey-Warren Buffett buys 6% of our company, and we still get flushed down to six bucks a share. Can't get any worse!"

[derspiess]

Maybe it's just me, but I would imagine that banks would like to make as much money as possible.

Prior to Dodd Frank, they could have charged merchants fees and also debit card holders a fee. Why didn't they?

They did charge debit card users a fee.  A per transaction fee.

Faelin is right in that the per-transaction interchange fee was paid by the merchant.  Yi is right in the sense that some banks have been charging their customers for PIN debit transactions (i.e., the "Debit" option at the terminal) because prior to Durbin, banks made a lot more money from signature debit (i.e., the "Credit" option at the terminal) than they did from PIN debit.  But this was more to push you toward using the "Credit" option than anything else.

My bank both punished me for PIN debit transactions (like a $.50 per transaction fee) and rewarded me for signature debit transactions (1 airline mile per every $2 spent).  I think I'll still get miles for the remainder of 2011.

[derspiess]

Well, it's not just switching. Some non-negative number of people will opt out of having the Visa/Mastercard branded debit cards, and go back to just having an ATM card which is still being offered fee-free. The truth of the matter is though, unless you're a high net worth individual, Bank of America, under the new rules, probably doesn't care if you have a debit card and may even desire you not to have one.

Exactly.  If you just have a checking account with B of A, keep a relatively small balance, but do a lot of debit card transactions, then you were probably a valuable customer for them prior to Durbin.  Post-Durbin, you're a liability as much as anything, unless they think they can get you to buy more of their products (loans, lines of credit, money market accounts, etc.)

[fhdz]

Isn't Wells Fargo instituting a similar fee pretty soon?

I wish my credit union had more branches, but even still: god, I love my credit union.