More banks testing debit card fees

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?

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