Use Your Debit Card ... and Pay Up!

by Pookie Skoran | October 3, 2011

The Associated Press recently reported that Bank of America is planning to start charging customers a $5 monthly fee for using a debit card.

The debit card fee will start early next year for customers who use their cards for purchases. Customers won’t be charged for using their cards at an automatic teller machine (ATM).

If you’re not a Bank of America customer, don’t get smug. Chase and Wells Fargo are testing a $3 debit card fee in some markets too. These two banks haven’t decided whether or when they’ll make the fee permanent. But it’s more than likely they’ll put some fee structure in place.

And generally once the big banks make the move, the smaller community banks will follow. So watch for an announcement from your own bank and be aware if debit card charges are in your future.

Bank customers have been paying higher fees and getting fewer rewards in the past year. These changes are a result of banks adjusting to new regulations that limit their traditional revenue streams.

Customer responses to the new fees vary. Some think the banks are just plain greedy. Others plan to move their business to banks that don’t charge a fee. And still others are suggesting they’ll go back to basics and use cash.

No doubt you have an opinion of your own. But the reality is it just doesn’t matter what you think! Bank revenue took a big hit from recent regulations that capped fees for late payments and overdrafts. So unless banks can find other ways to rebuild cash flow, they are going to have to charge fees for a variety of bank services. You’ll want to keep an eye out to see what’s next.

Certainly for consumers it’s hard to go from paying no fees for debit cards and checking account service to paying full freight. But consumers may actually benefit in the long run from this banking industry move.

Why? Because the more banks that survive, the more choice customers will have on where to bank, which fees to pay and which fees they can avoid. Bank competition is good for consumers.

And if banks can find ways to be profitable, the greater the chance they’ll stay in business. Plus the profit potential will encourage new banks to form and existing banks will have a chance to grow. That of course creates a good banking environment.

And healthy banks are strategically important to the flow of commercial and personal financial transactions, which is what keeps the financial world going ‘round.

So let the fees begin! Now we’re not saying banks should go all in and make this a “fee for all service” market. Not at all. The fee legislation was all about protecting consumers by controlling banks’ tendencies to maximize profit with no thought for the little guy.

If you’re a consumer, you know that regulating the fees banks can charge and the way they can determine those charges has definite merit. It certainly wasn’t fair for a bank to capture more overdraft income by manipulating the way they applied checks to deposit accounts.

Yes, banks actually did charge accounts for the largest check first. That way they left less money in the account to cover subsequent checks — voila, more bounced checks and more bounced check fees. And because customers cried foul, and banks refused to listen, regulators were forced to jump in and make some changes. Sometimes regulation is necessary to create fair trade and a level playing field.

Sometimes ...

Regulation is kind of like the “tilt penalty” when you’re playing pinball. The machine just won’t let you get away with cheating.

A bank with a fair strategy and a good balance of fee and non-fee service will be attractive to consumers. It’s good bank business to keep customers happy. And of course, it’s good for the customer.

Reasonable fees may help some banks get back to profitability and could keep some from failing. And there is no doubt we’d all rather keep our money in a safe bank — a bank that is also performing as a profitable business.

But if you have to pay your bank for service, you should be sure the bank is financially strong. Check to see the status of your bank’s financial health at WeissRatings.com.