Saturday, October 29, 2011

Banks Rethinking Debit Card Fees

A few posts back when I mentioned Bank of America's plans to introduce a $5 debit card usage fee, a huge consumer backlash came about.  People across the country were talking about closing their Bank of America checking accounts and it seemed as if there was a mass exodus from national banks to more local credit unions.  J.P. Morgan Chase has been testing a similar $3 debit card fee in a few states but plans on abandoning the idea.  Wells Fargo had been implementing an almost identical $3 fee that it has also decided to cancel.  TD Bank conducted a customer survey and found that about 75% use debit cards for convenience and that almost all of them would discontinue their account if a fee was imposed.  U.S. Bank has also come out saying that they do not plan on adding any fees.

On top of all this, even Bank of America is rethinking its strategy.  BofA is currently planning to configure more qualifications to help customers become exempt from the fee such as having a BofA credit card, having a minimum monthly deposit or a minimum balance.  It seems as if some of the analysts, who earlier said that BofA had done plenty of preparation planning the fee and would not have implemented it if it wasn't profitable, were wrong.  Especially in this economy, the public is extremely sensitive to how charges are framed and being imposed a fee for a service they have been using for free for as long as anyone can remember seems greedy and unjust.

Of course, banks have to find additional ways to make money as well.  Despite their revenue problems, there have been plenty of checking account offers and credit card offers that seem to pay consumers.  As I mentioned in my other post, I was able to get $150 for opening a Chase account (the offer has been since lowered to $125 last time I saw it) and I have seen some offers of $200 for opening a credit card and spending $500 within the first 3 months.  Anyone planning on buying a round-trip plane ticket can easily capitalize on this offer and get 50% off their flight.

Banks with credit card programs also have to fund their reward programs.  I mentioned in my earliest posts about the benefits with credit cards, but having these reward programs cuts into their profits earned on charging merchants.  For me, I have profited greatly off getting credit cards and using the free 1-month financing that it offers.  I have always wondered if these costs were passed down to all consumers anyway through higher retail prices of products and services.  Regardless, this just means that people not using a credit card may still be paying for the people who do use them and those using credit cards may just be breaking even with the fair price.

If you are fiscally responsible, I would highly recommend credit cards over debit cards.  For most college students, credit cards may seem too irresistable to treat like cash in which case debit cards are a more convenient alternative.  When it comes to the studying the star topic of personal finance, cash and debit cards may be the best solution for young adults.  And for those of us worried about banks across the country implementing new fees, we may be able to put aside our fears for a little while longer.

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