Bank of America backs down on $5 debit card fee
Posted November 1, 2011
NEW YORK — Bank of America Corp. is scrapping its plan to charge a $5 monthly fee for debit card purchases after outraged customers threatened an exodus.
The about-face comes as customers across the country petitioned the bank and mobilized to close their accounts in favor of credit unions and community banks. The outcry prompted other major banks, including JPMorgan Chase & Co. and Wells Fargo & Co., to cancel trial tests of their own debit card fees.
"I thought it was dirty, underhanded. It was like a family member taking advantage," said Kent Hart of Raleigh, who has banked with BofA and its predecessors for about 45 years.
Bank spokeswoman Anne Pace declined to say whether there was a spike in account closures following the September announcement that it would start charging the fee early next year.
The industry-wide retreat on the debit card fee is a rare victory for consumers who have been dealt an onslaught of new and higher checking account fees in the past year.
"When I heard about the fee, it was the last straw for me," said Molly Katchpole, a 22-year-old nanny whose online petition urging BofA to drop the debit fee captured more than 300,000 signatures. "I'm living paycheck to paycheck, and one more fee was just too much."
Katchpole said she already closed her account and moved her money to a community bank in Washington, D.C. For her, the damage has been done. She said BofA's decision won't win her back.
North Carolina State University senior Tiffany Buffkin said she also is searching for a new bank, despite the reversal on the proposed debit card fee.
Hart said he plans to stick with BofA, but he said he hopes the bank has learned its lesson.
"Before they do it again, I hope they pause, because people do have options," he said.
It's still too early to say whether the bank's gross miscalculation of consumer sentiment will have a lasting impact. But it also is dealing with a host of other troubles, including the potential for large mortgage-related settlements to drain its capital and plans to cut 30,000 jobs to reduce expenses.
Last quarter, the company lost its standing as the nation's largest bank by deposits to Chase.
The news of the debit card fee meanwhile drew criticism from even President Barack Obama and sparked a movement called "Bank Transfer Day" that urged customers to close their accounts by this Saturday.
Coastal Federal Credit Union, based in Raleigh, saw a spike in new checking accounts in October. Officials said they opened 1,800 accounts, compared with 800 in a normal month.
"This is Bank of America's Netflix moment," said Mark Schwanhausser, a banking analyst with Javelin Strategy & Research. "It misjudged what consumers would bear. It was the wrong fee at the wrong time."
The bank's actions echo the reversal of Netflix to split its DVD-by-mail and streaming video services after vehement consumer complaints.
The prospect of a debit card fee struck a nerve with customers because it's about accessing their own cash at a time when consumers are trying to cut back on borrowing, Schwanhausser said.
"I don't think they should charge you to get your own money," Raleigh customer Mickey Schroeder said. "It's kind of ridiculous to me."
Diane Abela, a 38-year-old Manhattan resident, said she had been waiting to see if BofA would back down on its plan before closing her account.
"I'm unemployed, and $5 makes a big difference," said Abela, who learned of the bank's reversal just before heading into a job interview. "When you're working on a budget every week, it's the last thing you need."
Unlike Chase and Wells Fargo, BofA's announcement that it would start charging customers a monthly debit card fee came without any testing in the marketplace.
Pace said the decision to roll out the fee was instead based on internal customer surveys. She declined to detail the nature of those surveys but said that, in the past couple of weeks, "customer sentiment changed."
The high-profile retreat could signal that the specter of a debit card fee has been extinguished for the time being. But it doesn't mean customers won't continue to see higher fees elsewhere.
"Bank of America didn't just decide to not make that money. They're going to get it one way or another," said Greg Atkins of Raleigh.
This past spring, for example, the Charlotte-based bank raised the monthly fee on its basic checking account to $12, from $8.95. The bank is also testing a new menu of checking accounts with monthly fees ranging from $6 to $25 in select states.
Pace said the pilot program is getting good results and that the bank plans to move ahead with its rollout sometime next year.
Other, smaller fees may be nicking away at customer accounts as well. In September, the bank instituted a $5 fee to replace debit cards, with overnight rush delivery costing $20. Both services had previously been free.
Chase and Citi also hiked fees on their basic checking accounts this year, to $12 and $10, respectively. Chase said it will end a test in Georgia of a basic checking account that charged an even higher $15 monthly fee, however.
And like many other banks, Wells Fargo ended its debit rewards program earlier this year.
In rolling out such unwelcome changes, banks have largely blamed a new federal regulation championed by Senator Dick Durbin of Illinois. The law, which went into effect last month, caps the amount banks can charge merchants whenever customers swipe their debit cards.
JPMorgan has said it would lose $300 million each quarter as a result of the regulation; Wells Fargo said it would lose $250 million a quarter.
For now, BofA said it doesn't have any new fee hikes in the works to make up the lost revenue.
"We will continue to initiate moves that mitigate loss revenue," Pace said. She added that the bank will also introduce products that "bring us more business from customers and reward them for doing so."