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More banks testing debit card fees

Some banks are already charging a monthly fee to those who use debit cards, and now the second-largest bank is trying it out.

By Karen Datko Aug 18, 2011 7:38PM

Don't you hate it when a business raises prices or tacks on a fee without offering anything new or improved in return? (Think the airlines. Also Netflix: That didn't go over well.)

 

Maybe that's why Wells Fargo is merely testing a $3 monthly fee for debit card users in five states. If customers take note and register displeasure, Wells Fargo, the nation's second-largest bank by deposits, can put this move back in the bad-idea bin and come up with some other way to make money.

 

Unfortunately it's not the only bank that likes this fee.

 

SunTrust has begun charging some customers a $5-a-month debit card fee and plans to expand it to others, and Regions Bank has a $4 monthly fee. JPMorgan Chase is testing a $3 fee in Wisconsin, according to Dow Jones Newswires. Bank of America may begin a test of its own. To their credit, US Bank and Capital One have no plans to trot it out. 

 

The Wells Fargo test fee will appear in October on some accounts in Georgia, Nevada, New Mexico, Oregon and Washington.

 

A little history will explain why this is happening.

 

Banks used to concentrate on making money the old-fashioned way -- charging interest on loans. The fee spigot opened in the late 1990s because of regulatory changes and other events. An eye-opening 2009 story in USA Today recounts:  

Some consultants offered banks ways to boost overdraft and credit card revenue. A 2001 "checklist" from Profit Technologies -- a firm that has worked with 19 of the USA's 20 largest banks -- has more than 600 strategies. Some are cost-cutting ideas such as printing a dispute form on the back of credit card bills to curb phone calls.
But most relate to income from fees. One strategy listed to boost overdrafts: "Allow consumers to overdraw their ... accounts at the ATM up to the bank's internally set limit." To increase credit card fees, banks can "delay crediting of payments not received in bank provided envelop (sic) or for which payment coupon is not received for up to 5 days," and "remove bar coding from remittance envelopes," slowing the payment.

Congress and federal regulators have put a stop to some practices. For instance:

  • Banks can no longer automatically enroll customers in "overdraft protection," which enabled them to process non-sufficient-fund transactions and charge people about $35 for each overdraft. (Several big banks have also lost or settled major lawsuits over the order in which they processed transactions -- paying the largest ones first so they could charge overdraft fees on multiple smaller purchases.)
  • As a result of the Durbin amendment to the Dodd-Frank financial reform bill, the Federal Reserve limited the swipe fee big banks can charge each time a debit card is used to about 21 cents, far below the 44-cent average banks have been charging and more in line with the actual cost of the service.

According to Bloomberg, the swipe-fee limit and another portion of the Dodd-Frank law called the Volcker rule will alone cost the 10 largest U.S. banks about $9 billion a year in revenue. Post continues after video.

Banks have to make it up somewhere, BB&T Corp. chairman and CEO Kelly King told Bloomberg.

"Make no mistake about it, over a period of time, we will recover these revenues because it's too significant for us to just absorb," King, 62, said after the bank reported that second-quarter profit climbed 46 percent.

It's widely expected that most big banks will adopt a monthly debit card fee. Dow Jones Newswires also said, "One bank was mulling calling a new fee the 'Durbin fee' on account statements, according to a person familiar with the matter." (Oh, please, grow up.)

 

Meanwhile, banks are also boosting revenue by dropping rewards programs for debit cards and doing away with free checking, waiving monthly fees only if customers keep a certain amount on deposit. (Similar conditions apply to get a waiver of the $3 Wells Fargo debit card fee.)

 

How else can you avoid the fee, if it comes to your bank account?

  • The fee is generally charged only when you use your debit card to purchase something within the month. You can avoid it by limiting your debit card use to withdrawing cash at the ATM.
  • Use your credit card instead.
  • Switch to a bank -- perhaps a community bank or credit union -- that doesn't charge the fee.

People will be looking for alternatives to paying it, an Associated Press-GfK poll indicates. The AP reported:

When asked how they would react if they were charged a $3 monthly fee for their debit card, 61% said they'd find another way to pay. If the fee was $5 a month, two-thirds said they'd do the same. If the fee was $7, the figure rose to 81%.

The Wells Fargo fee generally got poor reviews on Consumerism Commentary. While one reader said $36 in new fees a year isn't worth worrying about, others said there's a principle involved.

 

"It's the fact that they are charging for a service that used to be free and they're only doing it so they can continue to keep up profits," Kevin wrote.

 

"Flexo," who runs Consumerism Commentary, wrote:

As I've grown older and perhaps more financially secure, I don't automatically dismiss any product with a fee. But if there are better, free choices for the same service, you can be sure I'll send a message by ending my relationship as a customer -- and by sharing my experiences with whomever is interested in reading them.

What do you think of a monthly debit card fee?

 

More on MSN Money:

13Comments
Oct 14, 2011 8:07PM
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Unfortunately, I was laid off from my job due to the economy.  With that being said, I had only 8.00 in my Regions checking account.  I used what little money I had to stock up on items and pay this month's bills.  I just checked my account online and see where Regions took out the $4.00 debit card fee + $10.00 monthly fee because I do not have direct deposit nor do I have the $1,500 minimum to avoid the fee.  Wow!!!!!!  How does this benefit those of us who are unemployed due to economic circumstances and trying to live on the bare minimum?! Now I have a negative balance.  That 8.00 could have bought another gallon of milk next week for my kids or provided gas to drive to job interviews.  Thanks Regions! My kids and I appreciate you....yeah right.  I do not know of anyone, including myself, who has $200 in their account, let alone $1,500.  Is this going to be a weekly nightmare until I can enroll in direct deposit or win the lottery?? Please do not even get me started on their overdraft fees which were charged due to the negligence of companies putting amounts for bills though not once, not twice, but three - five times in multiple transactions during a given day. 

Something has to give.  These fees are not going to fly with the general public.  Maybe for the rich, but not for the poor.
Oct 13, 2011 1:03AM
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Its not enough that they get to use our money for free. Ill just use cash or checks.
Sep 30, 2011 2:49AM
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As a retailer I prefer cash to debit or credit transactions. Having the bank ding you on your credit cards then turn around and ding me every time you swipe one is one of the reasons for the new credit card laws. They were making a bundle off of card transactions. They charge you interest on your account, they pay you chump change on your savings and they nickel and dime retailers with every swipe. Believe me, they are not losing money in any way shape or form. If they say they can't 'eat' the losses they are lying. It's just another case of fat **** overpaid CEO's trying to protect their bonuses. Screw'em! Ditch the card that allows you to spend your OWN money instead of cash and just go back to using cash. We'll be happier as retailers that you did, and you'll be happier you did too as you are no longer hit up with overdraft fees and debit card fees. Win/Win for all of us, boo-hoo for them!
Sep 26, 2011 5:49PM
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I just talked with Regions(who I have an account with) and they told me they would start charging a $4 a month debit card fee if the card is used for anything other than withdrawing money at their ATMs. They said they will also charge $7 a month on any checking account that doesn't have at least a daily minimum of $500. ................I called Bank Plus and they told me they know other banks are going to start charging this fee, but they are not going to. They said that their ValuePlus Free Checking is free and will remain that way. They told me the usage of the debit card is free and will remain that way also. They also told me that they will pay the ATM fee if I have to use my card at another ATM other than theirs.  Guess where my account is going?.....  :)

Sep 23, 2011 6:46PM
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The banks should not be allowed to charge fees to have a debit card. the banks already get their money as a percentage of the transaction every time a debit card is used. The use of debit cards also SAVES the banks money. Transactions can be processed by computer very quickly with no human interaction. Also, will the fees be exempted for people on welfare/unemployment/etc who are required to use the cards to receive payments? 
Sep 23, 2011 3:04PM
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If they tack on a monthly fee I'll move my money to a bank or credit union that doesn't.  Or I'll go back to using cash. And when I move my checking account, Wells Fargo better realize I'm moving my two savings accounts too.

Sep 23, 2011 1:49PM
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I would NOT pay a fee for my Debit Card.  That is crazy. I would go back to checks or pay with my Credit Card or use cash.  I would definitely transfer my account to a Bank that doesn't charge a Debit Card fee.  Chase is lucky that they are not testing in Ca. or they would lose me as a customer.
Banks already fee us to death already.  That is my take on this Debit Card fee.  Thank you.

Aug 26, 2011 11:32AM
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With more people paying off debts and not overspending, together with the banks tigtening their loan requriements, they have to make up the money somewhere.  Otherwise, stockholders will vote them out of office.  However, Wells Fargo has much more to worry about that whether or not a customer won't use their debit card.  Wells Fargo "customer service" gives information about accounts over the telephone to whoever answers.  Who needs a hacker?  After marrying late in life, my husband and I keep our finances separate.  Yet Wells Fargo called and discussed my late payment with my husband.  Luckily, he also has had trouble with Wells Fargo and understood.  I paid off the account in full and they are still sending "computer generated notices."  When I called to complain, they would not speak with me until I verified all the information, including, get this, MY TELEPHONE NUMBER.  Do they not explain the Fair Debt Collection Act to their "customer service" representatives?  Working in a law office, I am preparing a complaint.  Perhaps if we all do, they might understand that if they have  no customers, they will have no stockholders,  and no high paying, benefit filled jobs.  
Aug 19, 2011 3:06PM
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If my bank charged a fee, I would cancel my debit card and start using my credit card.  I already pay my CC in full every month anyway.  In fact, it might be financially easier, as I can time my CC payments with my paychecks.  Hmmm....why DO I use a debit card anyway?
Aug 19, 2011 2:39PM
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Wells Fargo is losing me as a customer no matter what thanks to this "test". It's per card not per joint account and begins in November. I had no problems with Wells Fargo taking over Wachovia but I don't need a needless debit card fee added monthly when other banks will glady hold and use my money and let me use a non fee debit card.
Aug 19, 2011 7:01AM
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Just4u, it sounds like you requested a refinance that would either now or in the future lower your payments, correct? And they turned you down because the income to debt ratio is too low?

You're right it doesn't make sense.  You already owe the principal, you are already making payments.  It sounds like BS to me - sounds like if they give you a better deal then they will get less interest.   I'd recommend trying another bank.

 

To answer the author's question, I love my debit card and I'd pay $1 or $2 a month but no more.  I'd go back to using an ATM and a credit card and cancel the debit card.

Aug 19, 2011 12:31AM
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Ditto that. The banks can take their debit cards & shove them if they want me to pay a fee to use them. I'll go back to writing my free checks instead and hold up everybody who stands behind me in all the stores.
That's like my one bank charged me a fee because I hadn't made an "in person" teller transaction in the last 6 months, after they forced me to do my banking online. I mean...WTF !!
I hate banks. They give us nothing but headaches.
I did a refinance almost 2 years ago & asked the same bank to redo me a fixed loan this year. They said no, even tho my credit score is above their required level. Seems my income to debt ratio isn't high enough now because of the mortgage they gave me last time. Duhhhhhhh.....
So now I'm stuck with a ARM, which is what got this real estate mess started. Isn't it ?

How much sense does it make to refuse to give someone a new loan when the new loan will cost them less than the one they are already paying, on time & in full ?
Only way they would help me, is if I were default. That makes sense too, doesn't it ?
Geezzzz !!
Dam banks. They aren't going to make any money if they aren't going to make any loans to proven, responsible people.
Brains, huh ?
I'll use cash from now on. Screw them.

Aug 18, 2011 10:19PM
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Banks should go back to making money the old fashioned way by making loans and charging interest on those loans.

 

I'll gladly go back to using cash and give up the debt card.  Didn't want it in the first place but I bought into the sales pitch about the convenience factor.  They can swipe my you know what.

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