Bank of America will charge debit-card users $5 a month in response to new federal regulations that could cost the company up to $2 billion in annual revenue, it announced on Thursday.
The new regulations, which were approved by the Federal Reserve Board in June and will take effect on Saturday, reduce the amount of money banks can charge merchants for debit-card transactions. They are part of the 2010 Dodd-Frank financial regulatory bill, the result of an amendment by Sen. Richard Durbin (D-Illinois), the Senate majority whip.
Currently, when you pay for something with your debit card, the merchant is charged an average of 44 cents for the transaction -- that's why many stores set minimums for card purchases. But starting on Saturday, the amount banks can charge per transaction will be capped at 24 cents.
The economics of offering a debit card have changed with recent regulations, a Bank of America spokeswoman said in a statement on Thursday, The Wall Street Journal reported.
So starting in early 2012, Bank of America, which has the most assets of any bank in the United States, will charge customers $5 for each billing cycle in which they use their debit card to make a purchase. (ATM transactions won't count.) The fee applies to all standard checking accounts, but not to the premium accounts held by the wealthiest customers.
Several major banks have announced or are considering similar debit-card fees, but at $5, Bank of America is charging more than anyone else. Wells Fargo is testing a $3 fee in Nevada, Washington, Oregon, New Mexico and Georgia starting in mid-October, and J.P. Morgan-Chase is testing a $3 fee in Wisconsin, according to The Wall Street Journal. Citigroup, which owns Citibank, is planning to charge fees on some checking accounts, but not for debit-card transactions.
Obviously, nobody likes fees, Lisa Westermann, a spokeswoman for Wells Fargo, told The Wall Street Journal on Thursday. Some people are going to be unhappy, but you have other people that understand that debit-card services aren't free for banks.
Senator Durbin brushed off criticisms that his amendment was responsible for the new fees, accusing Bank of America of trying to find new ways to pad their profits by sticking it to its customers, The Financial Times reported.
It's overt, unfair, and I hope their customers have the final say, he added. Small business and merchants will benefit from fee relief and consumers will benefit from lower prices, and banks that try to make up their excess profits off the backs of their customers will finally learn how a competitive market works.