Debit Card Fees Translating to Consumer Backlash

“A checking relationship with rewards – and no monthly debit card fee.” That’s the online promotion Citi is running right now. No doubt other financial institutions soon will be spinning similar themes, as big banks rush to abandon planned debit card fees in response to growing and vocal consumer frustration.

As the Dodd-Frank financial bank reform instituted caps on what big banks (greater than 10 billion in assets) could charge in swipe fees (what banks can charge merchants for debit card transaction processing), banks reacted by announcing or testing new fees to make up for lost revenues.

The most visible example was Bank of America’s planned 5 per month fee for account holders using debit cards for retail transactions. Other big banks, such as Wells Fargo, SunTrust and JPMorgan Chase, had already been quietly testing debit card pricing scenarios.

Now, upon further review, plans for debit card fees appear to be melting at bank board room tables due to heated consumer reaction and concern that consumers would take their deposits elsewhere. And that concern is warranted. Consider these items:

  • A petition on Change.org has more than 300,000 virtual signatures calling for Bank of America to reverse its plans for debit card fees.
  • A Bankrate.com survey indicated 64 percent of Americans would consider switching institutions if checking account fees increased. Among more affluent people, the figure was even higher.
  • More than 60,000 people have RSVP’d to Bank Transfer Day, a social-media-driven movement started by an art gallery owner unhappy with her bank. She’s calling for people en masse to switch their accounts to credit unions or community banks on Nov. 5.
  • National Association of Federal Credit Unions recorded a 350 percent increase in Web traffic to its online credit union locator.
  • The Navy Federal Credit Union, the world’s largest credit union with 46 billion in assets and 3.8 million members, says it welcomed thousands of new customers last week, a threefold spike in new checking accounts since this time last year.
  • First Tennessee Credit Union is offering up to 396 plus a one-day-only bonus of 100 if people switch accounts to them on Nov. 5.

Will all this frustration translate into people voting with their deposits and actually switching banks?

Gerard Cassidy, director at bank equity research for RBC Capital Markets, says it could take a year before the effects of the fee-fallout will be evident, and that big banks will lose far fewer than 10 percent of their customers in response to new fees. But even a small number of big-bank defectors now could be huge for local institutions.

As Cassidy summarizes, “Crumbs for the large bank are large pieces of pie for the community bank.”

Posted in: Business, Marketing, Society

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