Would you use your debit card if the bank charged $5 per month for this privilege? Bank of America customers will soon have to decide.
The Associated Press reports that, beginning early 2012, Bank of America will begin charging a $5 monthly fee in any month a customer with a basic checking account uses the debit feature to make a purchase (ATM withdrawals don’t count).
Why Will Bank of America, SunTrust, Wells Fargo, J.P. Morgan Chase Charge Fees for Using Debit Cards?
Bank of America isn’t the only one – other banks are following suit. SunTrust, Wells Fargo, and J.P. Morgan Chase have all indicated they will charge debit card usage fees.
Banks are reacting in direct response to the “Durbin amendment” to the Dodd-Frank Wall Street Reform and Consumer Protection Act, H.R. 4173. This financial reform legislation, signed into law by President Obama in July 2010, is designed to improve accountability in the United States financial system, including ending bailouts and protecting consumers from abusive financial services practices.
The Durbin amendment aims to cap so-called “interchange fees” banks charge merchants for swiping debit cards. With these fees being capped, banks are looking at substantial cuts in easy revenue; that’s where the debit card fees come in. If the banks can’t charge merchants as much, the consumer must pay extra to help offset the lost revenue.
What Can You Do to Avoid Debit Card Fees?
No one wants to pay even $5 for a service that has always been free of charge. But how can you get around having to pay the monthly debit card fee?
- Use cash – Banks won’t be charging for ATM withdrawals, so you could just withdraw cash as needed. This option would certainly be good for your budget if you simultaneously implement an envelope budgeting system.
- Switch to a credit card – The retailer pays all associated fees; as long as you can control your spending, this is a fine option.
- Switch to a bank or credit union that doesn’t charge a monthly debit card fee – According to Bloomberg, Citigroup and Ally Financial don’t currently plan on charging customers for using debit cards. Member-friendly credit unions will surely not enforce such fees.
- Run the card as credit – In the case of Visa and MasterCard bank-issued debit cards, this can work; however, sometimes the store computer automatically detects the debit option and prompts you to enter a PIN. In that case, you’d have to be prepared with an alternate form of payment to avoid this fee.
Further Reading and Background Information on the Durbin Amendment
It can be annoying to have to consider whether you want to pay a fee for using your debit card, but most people who don’t wish to pay that fee should be able to find a workaround. Banks will likely recoup some of their costs from those who would rather just pay the $5 than worry about it, and there is a chance that one or more of the banks that decide to charge fees will reverse their policies if enough customers jump ship.
If you would like more background information on the issues related to the debit card swipe fees, NerdWallet.com has a very interesting article on the Durbin amendment.
Resources:
- Banks to Make Customers Pay Fee for Using Debit Cards by Tara Siegel Bernard. Retrieved from nytimes.com on September 30, 2011.
- BofA Plans $5 Monthly Fee for Some Debit Cards by Hugh Son. Retrieved from bloomberg.com on September 30, 2011.
- Dodd-Frank Wall Street Reform and Consumer Protection Act. Retrieved from The Library of Congress website, thomas.loc.gov, on September 30, 2011.
- More Bad News for Bank Customers: Debit Card Fees by Candace Choi. Retrieved from ap.org on September 30, 2011.
Lena Gott - Lena Gott is a Certified Public Accountant who gives practical financial advice to her readers.
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