Diversified financial services firm Wells Fargo & Co. (NYSE:WFC) said it is cancelling its planned five-state pilot of a monthly $3 fee for users of its debit cards as a response to customer feedback the bank has received.
"As we adjust to changes in our business, we will continue to stay attuned to what our customers want," said Ed Kadletz, Head of Wells Fargo's Debit and Prepaid Cards.
The news comes as industry giant Bank of America (NYSE: BAC) is reportedly re-considering its plan to charge $5 monthly debit card fees after similar public outrage. Other banks like JPMorgan Chase (NYSE: JPM) and Citigroup (NYSE: C) have also dropped their plans to charge for debit card usage.
The debit card fees fiasco comes at time when banks are scrambling to generate new sources of revenue. Profits of major banks are hurt by low interest rates and higher capital requirements coupled with a weak demand for loans due to the sluggish economy.
The Durbin Amendment gave the Federal Reserve the power to regulate debit card interchange fees. In June, the Federal Reserve said the maximum permissible interchange fee that an issuer could receive for an electronic debit transaction would be the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction.
As a result, a covered issuer eligible for the fraud-prevention adjustment could receive an interchange fee of up to about 24 cents for the average debit card transaction, which is valued at $38.
If banks started to charge higher fees on checking accounts to recover lost debit card revenue, it could push perhaps 5 percent of current bank customers out of the system and into the use of check-cashing stores and other nonbank financial services.
Averaged across 25 million to 35 million checking accounts for the very large banks, that is a lot of revenue to recover but it seems that somewhere between 50 percent and 75 percent of that revenue can be recovered over time. For most banks, the revenue recovered per checking account to offset the 75 percent revenue loss comes in the range of $4 to $6 per month per checking account.
Sen. Dick Durbin had pointed out repeatedly on the Senate floor on June 7 that about 50 percent of the entire banking industry's debit card revenue went to Bank of America, Wells Fargo and JPMorgan.